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To: Hawkmoon who wrote (88788)	3/18/2001 7:36:22 PM
From: Tommaso	Read Replies (1) \| Respond to of 95453

" money supply must grow when there is an unwillingness in the market to hold other value instruments such as stocks" Well, you see, that's not what happened in 1930-32. The money supply actually shrank, though money was what everyone wished that they had. Stock values do not much affect the money supply. It's the other way around. Stock values are measured by money. Let's take as an analogy an unusual kind of auction where 100 people arrive, each bringing items to auction off, for a fee to the auctioneer, and each with $100 in their pockets. The money supply for the auction is $10,000 (let's assume everything has to be paid for in cash). Anyone has the right --as long as the auction lasts--to out whatever that person has bought back up for sale. Suppose that there is very lively bidding for a while and that various items are selling for higher and higher prices. Bidders are eager and compete against one another. A lamp that started out at $1 gets bid up to $5--and later is put back up for sale and goes up to $8.. A grandfather clock gets bid up from a starting point of $10 to $100. After about two thirds of the items have been sold, at increasingly higher prices, everyone has almost used up their money. At this point, a lamp identical to first one only gets bid up to $100. The owner of the first lamp becomes uneasy and puts it back up for sale, but it only brings $90. The owner of the second lamp immediately offers it for resale, but it only brings $50. Other deals get made. Some people begin to decide not to bid on anything and to keep their money. They offer their purchased merchandise at lower and lower starting prices. At the end of the auction, some very shrewd bidders have a lot more than $100 they came with, some have valuable merchandise that they bought at bargain prices, and some have hardly anything. There is a great willingness to hold money, for most of the people there, but that willingness does not increase the amount of money. The increase has to come from somewhere else. One could continue this by figuring what would happen if the auctioneer took credit cards, etc., or if people went home and got more money.