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money that we have been dealing with, you as an individual can hold any amount of cash you wish, subject only to the level of your wealth. But at any time there is a fixed total amount of cash, determined primarily by the Federal Reserve if cash is defined as the base, or by the Fed and the banks if cash is defined more broadly. You can hold more only if someone else is holding less, yet there is nothing in your personal situation to make you aware of that.

To you as an individual, an increase in income is a good thing, whether its ultimate source is your own enhanced productivity or the government's printing of money. Yet to the community at large the two sources are very different: the first is a boon, while the second may be a curse, as it was in the helicopter fable of chapter 2.

It is natural for individuals to generalize from their personal experience, to believe that what is true for them is true for the community. I believe that that confusion is at the bottom of most widely held economic fallacies—whether about money, as in the example just discussed, or about other economic or social phenomena.

It is human, also, to personalize both the good and the bad, to attribute anything bad that happens to the evil intent of someone else. However, good intentions are at least as likely to be frustrated by misunderstanding as by an unseen devil. The antidote is to be found in explanation, not recrimination.

The importance of a correct understanding of economic relations in general and of monetary matters in particular is vividly brought out by a statement made two centuries ago by Pierre S. du Pont, a deputy from Nemours to the French National Assembly. Speaking on a proposal to issue additional assignats—the fiat money of the French Revolution—he said: "Gentlemen, it is a disagreeable custom to which one is too easily led by the harshness of the discussions, to assume evil intentions. It is necessary to be gracious as to intentions; one should believe them good, and apparently they are; but we do not have to be gracious at all to inconsistent logic or to absurd reasoning. Bad logicians have committed more involuntary crimes than bad men have done intentionally [September 25, 1790]" (quoted from Friedman 1977, p. 471).

References

Bagehot, Walter. Lombard Street. London: H. S. King, 1873.

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———. "The Role of Monetary Policy in Israel's 1985 Stabilization Effort." Working Paper WP/90/29. Washington: International Monetary Fund, April 1990. (b)

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Bruno, Michael, and Meridor, Leora (Rubin). "The Costly Transition from Stabilization to Sustainable Growth: Israel's Case." Discussion Paper 90.01. Jerusalem: Bank of Israel, January 1990.

Bryan, William Jennings. The First Battle. Chicago: W. B. Conkey Co., 1896.

Cagan, Phillip. "The Monetary Dynamics of Hyperinflation." In Studies in the Quantity Theory of Money, edited by Milton Friedman. Chicago: University of Chicago Press, 1956.

Capie, Forrest. "Conditions in Which Very Rapid Inflation Has Appeared." In The National Bureau