ABSTRACT
The beginner in economics believes, and will state without fear of contradiction, that not only can the government make money by law, but also that it does actually do so. Fiat money has no promissory relationship to other money. The government definitely promises to redeem certain forms of money in gold coin, and because of this promissory relationship this money cannot be depreciated below the purchasing power of gold coin. The whole charge for fiat money may be considered as seigniorage, seigniorage being the monopoly price which the government charges for the issue of fiat money. Diminishing desirability expresses the principle that as supply increases the total desirability increases at a diminishing rate. The level of prices determines for the individual what he can get in exchange for a unit of money. The supply of money includes the quantity of it and, what is equally important, the velocity of its circulation.
