269

‘create’ money. One of the most important factors to 

 

remember in this 

connection is that the supply of money affects the general level of 

prices—the cost of living. The Cost of Living Index and money supply 

are parallel."

The decisions of the Federal Reserve Board, or rather, the decisions 

which they are told to make by "parties unknown", affect the daily lives 

of every American by the effect of these decisions on prices. Raising 

the interest rate, or causing money to became "dearer" acts to limit 

the amount of money available in the market, as does the raising of 

reserve

__________________________

91 Peter L. Bernstein, A Primer On Money, Banking and Gold, Vintage 

Books, New York, 1965, p. 104

165

requirements by the Federal Reserve System. Selling bonds by the 

Open Market Committee also extinguishes and lowers the money 

supply. Buying government securities on the open market "creates" 

more money, as does lowering the interest rate and making money 

"cheaper". It is axiomatic that an increase in the money supply brings 

prosperity, and that a decrease in the money supply brings on a 

depression. Dramatic increases in the money which outstrip the supply 

of goods brings on inflation, "too much money chasing too few goods". 

A more esoteric aspect of the monetary system is "velocity of 

circulation", which sounds much more technical than it is. This is the 

speed at which money changes hands; if it is gold buried in the 

peasant’s  garden,  that  is  a  slow  velocity  of  circulation,  caused  by  a