Why Gold-Backed Money Doesn’t Bring Economic Booms and Busts

According to popular thinking, not every increase in the supply of money will have an effect on economic activity. For instance, if an increase in supply is matched by a corresponding increase in the demand for money, we are told, then there won’t be any effect on the economy. The increase in the supply of money is neutralized, so to speak, by an increase in the demand for money, or the willingness to hold a greater amount of money than before. What do we mean by demand for money? And how does this demand differ from demand for goods and services?

First published here: Why Gold-Backed Money Doesn’t Bring Economic Booms and Busts