it back up again by lending more. Changes in velocity get offset by money stock. Theory of Free Banking, first book. Why is there a Fed at all? " At one point Selgin says that if people heldGearge Selgin says otherwise: "Falling price level if productivity positive. Less-than-zero argument. If public wants to accumulate more money and stops spending, don't draw as many checks or pass on their bank notes, decline in the velocity of money, would be a tendency for banks to issue more money, make more loans; their demand for reserves is a function of the flow of payments through the clearing system. When flow goes down, banks can bring it back up again by lending more. Changes in velocity get offset by money stock. Theory of Free Banking, first book. Why is there a Fed at all? " At one point he says that if people held all there money as cash the banks could produce an infinate amount of money. all their money as cash the banks could produce an infinite amount of money. It seems to me that free banking was evolving away from gold to into a system with money backed by assets. In such a system there would be a completely flexible money supply. Banks would be constrained from inflating by competition but in the case bank failures other banks could easily make up the slack. All the money stock could not deflate at ounce. Free banks could get money into circulation by