ABSTRACT
Although the supply of credit money may vary within the limits already explained in relation to the supply of cash, these variations do not necessarily take place harmoniously with variations in the quantities of commodities and services produced for sale. An increase in the quantity of credit money takes place as a result of an increased effective demand for money by the public arising from an increase in the effective demand for commodities and services-and this is almost invariably accompanied by increased production. But an increase in the production of commodities and services for sale, whether it takes place as the result of an actual increase in the effective demand or merely as the result of the expectation of such an increase, may be followed by those in possession of the money waiting for a fall in prices, or refusing absolutely to buy commodities and services of any kind or to lend money to anybody else to use in this manner. The extent to which the effective demand is thereby reduced correspondingly reduces the supply of credit money; and, hence, the supply of credit money may even diminish eventually6 as the result of an increase in the production of commodities and services for sale. We can therefore state: That the supply of credit money, subject to the manner in which it is limited by the supply of cash, varies as the effective demand for commodities and services and not as their production.
