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Strategies & Market Trends : Heinz Blasnik- Views You Can Use
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To: GraceZ who wrote (2403)6/11/2003 1:32:47 PM
From: Don Lloyd  Read Replies (1) of 4905
 
Grace,

Money is just a medium of exchange. If the number and value of exchanges goes up the money supply has to grow in order to provide enough "medium of exchange" to transact.

This is a common fallacy, but completely wrong. The scarcity value of money comes from its demand to be held as a store of future purchasing power, and has next to nothing to do with the number and value of transactions.

Every dollar of the money supply is always owned by a single someone every nanosecond, while transactions are instantaneous and do not reflect a net demand on, or a consumption of, the money supply.

If you want to buy something that costs a million dollars and you only have $100 in cash, it's not simply the lack of money that prevents your transaction, but rather the lack of other assets that can be converted into money, sequentially, if necessary.

Regards, Don
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