Re: Ponnuru’s query: I address this point in my book Economics for Real People: “The desire to hold cash alters prices. It is true that not everyone in the economy can put more dollars under their mattress at the same time. As there are only so many dollars in existence, everyone’s efforts to trade goods for a certain number of dollars cannot all succeed. They need someone on the other side of the exchange, trading dollars for goods. But even if all market participants are trying to trade goods for dollars, they can achieve their goal in the sense that the real value of each person’s cash holdings can rise at the same time. Trying to gain cash by selling goods, people drive the price of money up and that of all other goods down. There won’t be more dollars in the economy, but at the new, lower price level, each dollar can buy more.”
