Fed's Money Accommodation Myth Debunked by Mises Institute

The idea that the Federal Reserve should accommodate increases in the demand for money is based on the notion that a growing economy requires a growing money stock. According to some, the supply of gold is not related to the quantity of goods and services being produced, leading to scarcity and economic stagnation.

This perspective suggests that a flexible monetary system allows for more money to be created to accommodate growth, preventing shortages and their associated negative effects on the economy.

However, this line of thinking is countered by the Mises Institute's argument that the demand for money is not solely about consuming it but rather about its purchasing power. According to Mises, 'Nobody wants to have in his cash holding a definite number of pieces of money or a definite weight of money; he wants to keep a cash holding of a definite amount of purchasing power.'

The Institute argues that with commodity money, an increase in supply will not set off the boom-bust cycle seen with inflationary increases. In fact, they assert that any amount of money chosen by the market is sufficient, eliminating the need for central bank intervention.