If the central bank of a country enacts tighter monetary policy, that is to say, the government start selling its securities, this reduces the supply of money in an economy.
He supports depoliticizing the supply of money, considers free market monetary arrangements feasible and argues that market monetary institutions can more credibly be found by contract to perform as desired.
However, deflation is the natural condition of hard currency economies when the supply of money does not grow as quickly as population and the economy.
Monetary policy rests on the relationship between the rates of interest in an economy, that is the price at which money can be borrowed, and the total supply of money.
He argued that industrial depressions, with falling prices, were due not to insufficient supply of money, but to sudden and rapid increase in commodities.
It is an unorthodox theory, which contrasts with the usual monetary theory of the price level, where the price level is primarily or exclusively determined by supply of money.