Commodity money and the money supply Consider the description of cigarettes provided by British economist Richard A. Radford during World War II:
Each cigarette contains the same amount and quality of tobacco. Each pack contains 20 cigarettes and is easy to carry around. As long as they are kept dry, cigarettes have a relatively long shelf life. Prisoners would often smoke the cigarettes as a source of tension relief.
Radford’s description implies that cigarettes meet all the requirements to serve as (commodity money, flat money) because they exhibit the following set of properties:
1. Dis-intermediation, store of value, and divisible
2. Portable, source of relief, and durable
3. Divisible, portable, standardized, in broad demand, durable
4. In broad demand, profitable, unit of value
While reading the chapter on "Money, Money Supply, and Interest", Eric noticed that David Ricardo and Milton Friedman agree that if the money supply increases too quickly:
1. The rate of inflation increases
2. Unemployment increases
3. Tecessions or a depressions occur
4. The rate of inflation decreases