Changes in the general level of prices are capable, as we’ve seen, of eliminating shortages or surpluses of money, by adding to or subtracting from the purchasing power of existing money holdings. But because such changes place an extra burden on the price system, increasing the likelihood that individual prices will fail to accurately reflect the true scarcity of different goods and services at any moment, the less they have to be relied upon, the better. A better alternative, if only it can somehow be achieved, or at least approximated, is a monetary system that adjusts the stock of money in response to changes in the demand for money balances, thereby reducing the need for changes in the general level of prices.
Please note that saying this is not saying that we need to have a centrally-planned money supply, let alone one that’s managed by a committee that’s unconstrained by any explicit rules or commitments. Whether such a committee would in fact come closer to the ideal I’m defending than some alternative arrangement is a crucial question we must come to later on. For now I will merely observe that, although it’s true that unconstrained central monetary planners might manage the money stock according to some ideal, that’s only so because there’s nothing that such planners might not do.
The claim that an ideal monetary regime is one that reduces the extent to which changes in the general level of prices are required to keep the quantity of money supplied in agreement with the quantity demanded might be understood to imply that what’s needed to avoid monetary troubles is a monetary system that avoids all changes to the general level of prices, or one that allows that level to change only at a steady and predictable rate. We might trust a committee of central bankers to adopt such a policy. But then again, we could also insist on it, by eliminating their discretionary powers in favor of having them abide by a strict stable price level (or inflation rate) mandate.