Wednesday, October 14, 2009

Volume of Money

The volume of money is not something that the government should control. Nor should it be kept constant, or only allowed to increase at a constant rate. People generally sell things (including their labour), so that they can buy other things that they want. Therefore, the volume of claims, which exist at any time, will depend on how many people have completed both their buying and selling. The number and value of half completed transactions will fluctuate dramatically.

It is possible in theory, say at the end of the financial year, that all people will have completed all their transactions. There might be no outstanding claims to goods and services. The total volume of claims could be zero. In practice this is unlikely to occur, as in the modern economy the flow of transactions from producers to retailers is continuous. However the fact that it is theoretically possible for all legitimate claims to be extinguished at a particular point in time, shows the stupidity of trying to control the volume of money. It can be very small at one point in time and quite large a few days later, depending on how people stream their transactions.

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