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To: Ilaine who wrote (274)	5/9/2001 11:19:28 PM
From: Don Lloyd	Respond to of 443

CB - The money supply can also grow by adding more physical money - printing more notes, coining more coins. If the government wants to spend money, it doesn't have to borrow it first. Not anymore. It can contract by physical money being subtracted - held in bank vaults, put under mattresses, repatriated. It can be effectively expanded or contracted purely by propaganda, etc., as well. Money supply changes only have an effect by changing the subjective marginal value that people give money when exchanging it for other goods. If people are willing spend more money for a given good it can equally well be a psychological effect as the effect of having having more actual money and a lower subjective marginal value because more money is held and the law of diminishing marginal utility applies. Regards, Don

To: Ilaine who wrote (274)	5/9/2001 11:22:01 PM
From: JF Quinnelly	Respond to of 443

Currency and coin is a very tiny fraction of the money supply. The BPE's printing presses could run non-stop without making an impact on the money supply. The vast bulk of money is held as bank balances. The fear of bank failures in the 30s prompted the public to pull out their money. Friedman and Schwartz think this had a contractionary effect, banks using deposits as a basis for the amount of loans they make- but since it was hard to find qualified borrowers in the 30s it's hard to know how much this diminished loans.