Money supply

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Money supply or money stock is the total amount of money available in an economy at a particular point in time[1]. Different metrics exists due to the different definitions of money.

True Money Supply

Main article: True Money Supply

Austrian economists Murray Rothbard, Joseph Salerno, Frank Shostak, and John Shedlock have developed alternative monetary aggregates, variously called the "true money supply" or the "Austrian money supply" that further differ slightly from other definitions referenced below. [2][3]

Non-Austrian monetary aggregates

There are also a number of other monetary aggregates to measure and interpret the money supply.


According to the Bank of England, M0 or "narrow money" is composed of notes and coin in circulation outside the Bank of England, and banks’ operational deposits with the Bank of England. It is not published by this bank since 2006,[4] but other banks continue using variants of it.[citation needed]


According to the European Central Bank, M1 is defined as currency in circulation plus overnight deposits.[5]

The Federal Reserve defines M1 as:

  • M0, or base currency: the face value amount of fiat physical U.S. notes, dollar bills, and coins circulating.
  • + Demand deposits: the amount held in checking accounts and other forms of immediately refundable deposits. This also does not need to be held physically and can be kept purely as an account balance, which is what is meant by most Austrian authors when they describe that the FED 'prints money out of thin air' [1].
  • - Demand deposits due to the Treasury and depository institutions
  • + Travelers checks
  • - Federal Reserve float and cash items in process of collection.



According to the ECB, M2 comprises M1 plus deposits with an agreed maturity of up to and including two years and deposits redeemable at notice of up to and including three months.[5]

The Fed defines M2 as the following, and is taken by many economists of competing schools to be the definition of money:

  • M1
  • + Savings accounts
  • + Certificates of deposit of small denomination (under $100,000)
  • + Money market accounts
  • + MMMFs and other retail money market mutual funds



For the ECB, M3 comprises M2 plus repurchase agreements, money market fund shares and units as well as debt securities with a maturity of up to and including two years.[5]

For the Fed, M3 is:

  • M2
  • + large-denomination ($100,000 or more) time deposits
  • + repurchase agreements issued by depository institutions
  • + Eurodollar deposits, specifically, dollar-denominated deposits due to nonbank U.S. addresses held at foreign offices of U.S. banks worldwide and all banking offices in Canada and the United Kingdom
  • + institutional money market mutual funds (funds with initial investments of $50,000 or more, also known as 'MMMFs').



The MZM used by the Fed ("money, zero maturity", i.e., all paper that can be 'immediately liquidated') is:

  • M2
  • - small-denomination time deposits
  • + institutional money market mutual funds (that is, those included in M3 but excluded from M2).



For the Fed, M4- is:

  • M3
  • + Commercial Paper (an unsecured promissory note (e.g., a formal IOU), typically introduced by large corporations)

M4 simply also adds:

  • + T-Bills



L is currently the broadest measure of money, and is meant to represent total Liquidity in some sense. It is

  • M4
  • + Banker's Acceptance (promissory notes backed by a bank)


Changes in the money supply

An increase in the money is called inflation[7], while a contraction or decrease is called deflation.[8]

See also


  1. Paul M. Johnson. "Money stock", from "A Glossary of Political Economy Terms".
  2. Robert P. Murphy. "Lost in a Maze of Money Aggregates?", Mises Daily, February 14, 2011. Referenced 2011-02-14.
  3. Michael Pollaro. "Money Supply Metrics, the Austrian Take"
  4. Bank of England. "Explanatory Notes - M0", referenced 2010-10-06.
  5. 5.0 5.1 5.2 The European Central Bank. "Monetary aggregates". Referenced 2010-10-05.
  6. 6.0 6.1 6.2 6.3 6.4 6.5 Research Division of the Federal Reserve Bank of St. Louis. "Definitions" (pdf) from Monetary trends. Referenced 2010-10-06. Cite error: Invalid <ref> tag; name "Fed_definitions" defined multiple times with different content Cite error: Invalid <ref> tag; name "Fed_definitions" defined multiple times with different content
  7. Henry Hazlitt. "What You Should Know About Inflation", Mises Institute, referenced 2010-10-0.
  8. Murray N. Rothbard. "C. Secondary Developments of the Business Cycle", Man, Economy and State, referenced 2010-03-09.

External links