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Demand for money is not infinite. In fact, there is no real demand for money at all, only demand for the things you can buy now or in the future for money. So you want the money to buy other things, not for the money itself. The closest thing to organic demand for money is the store of value trait of good money; you temporally arbitrage production changes relative to money supply hoping that that money can buy you the same or more value in the future, that's another dimension added but is still ultimately only demand for the things money can buy.

This means 2 things of course, one, that "demand for money" is ultimately only network effects (the set of all markets accepting a type of money is a network) and two, that "demand for money" and supply increase do not occur in lockstep, there's an interesting feedback loop there actually, but that demand follows supply increase relative to production increase.

epsql 6mo ago

Why would you say it's only network effects (unless you guys are talking specifically about demand for one kind of money over another)?

The way I see it is the following: money is demanded fundamentally because of uncertainty, i.e. economic agents don't know what they need in future and how much of it they might need. They don't even know what might be available in the future in the first place, so at virtually no point will somebody refuse to have more money for the same amount of effort, whereas one might stop wanting more units of a particular good or service for obvious reasons.

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Discussion

Hanshan 6mo ago

more fundamental than arbitrage against uncertainty is simple exchange. we need something to trade for shit we need.

"demand for money" is the liquidity for the different economic nodes that want to exchange with each other. not individuals wishing they had more purchasing power or greater hedge against future uncertainty. at least in the strict economic sense.

so when the macro demand for exchange increases, it isn't inflationary for there to be a similar increase in monetary units.

mister_monster 6mo ago

So, demand for money is demand for things you can acquire with that money. It is demand for access to markets that utilize that money. Necessarily this is demand for one kind of money over another, because you want the things that money can buy and there aren't very many markets (yet) where merchants let you decide which money you want to give them. And when people select a money that they decide they want to have, they're going to select the one that's easiest for them to use to get the things they need, which is going to be the one that others also want because they need to spend to get the things they need and so on. Textbook network effects.

Money is demanded fundamentally because of hunger and thirst. And nobody will turn down more money because it's this magic substance that be transformed into anything they want; they want other things and that's the appeal of money. But yes, uncertainty about the future is risk that can be negated by just having more money. That risk calculation is actually the same math a fractional reserve banker would do to determine how much reserves they need on hand, which is fun to think about.