Brian Baker (“The Value of the $10 Bill,” Aug. 3)forgets that every time the Fed issues a $10 bill, it gets $10 worth of assets (usually government bonds) in exchange. As long as the Fed’s assets move in step with the amount of dollars it issues, the value of the dollar will not change, even as the money supply expands. Only when the Fed’s issuance of dollars outruns its assets will the Fed cause inflation.
Brian espouses the quantity theory of money, as laid out in economics textbooks. Brian can’t be blamed for bad theories that have survived in textbooks, but there is a better theory of money, which can be found by googling “backing theory of money,” “law of reflux” and “real bills doctrine.”