Abstract
In 1952 Professor William J. Baumol published an inventory model for determining the optimum transactions demand for cash.' The implications of this model have received considerable attention in subsequent literature, and the article has become a required reading for students of monetary theory. Considering the attention Baumol's model has received, it is curious that an apparent omission has not been recognized. Baumol presents two cases. In the second case the firm invests I dollars and withholds R dollars for transactions purposes during the period (RIT), then commences to disinvest in amounts, C, for the remainder of the period, (IIT). In deriving the demand for cash Baumol states, . . the total cost of withholding the R dollars and investing the I dollars will be
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