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Should the Fed Print Money to Accommodate Demand for Money?

For most economists and commentators the main role of the Fed is to keep the supply and demand for money in equilibrium. Whenever an increase in the demand for money occurs, to maintain the state of equilibrium the accommodation of the demand for money by the Fed is considered as a necessary action in order to keep the economy on a path of economic and price stability.

The accommodation of the increase in the demand for money is not considered as money printing and therefore not harmful to the economy i.e. setting in motion the boom-bust cycle as long as the growth rate of money supply does not exceed the growth rate in the demand for money.

Note that on this way of thinking since the growth rate in the demand for money is offset by the growth rate of the supply of money then no effective increase in the supply of money occurs. From this perspective, no harm is inflicted on the economy.

Why accommodating demand for money always harmful

What do we mean by demand for money? In addition, how does this demand differs from the demand for goods and services?

The demand for a good does not reflect the demand for a particular good as such but the demand for the services that the good offers. For instance, an individual demands food because this provides the necessary elements that sustain his life and wellbeing. Demand here means that people want to consume the food in order to secure the necessary elements that sustain their life and wellbeing.

The demand for money arises because of the services that money provides. However, instead of consuming money people demand money in order to exchange it for goods and services.

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