“Ask yourself, why do I hold some of my wealth in the form of money? The answer is, because you like the unique flexibility that only money can give you. If you have demand for money, it means that you have demand for purchasing power in the form of money. It is not a specific number of paper notes or weight of gold that you desire to hold – neither, by itself, does anything for you – but it is the spending flexibility that the monetary asset gives you, its exchange value, that you demand.
From this, some powerful conclusions already follow. A growing economy does not need a growing supply of money. If people have more demand for money, they sell non-money goods (or reduce their money-spending on non-money goods) and accumulate money balances. In the process, the ‘price’ of money (its exchange value) goes up. The same physical quantity of money now gives everybody more spending flexibility. This process – a natural market process – has satisfied the rising money demand automatically.” – Austrian School Economist Detlev Schlichter, as quoted in The Daily Bell.
Jim’s Quote of the Day:
