when the banks run out of money that is also money not being able to move where its needed. we can call that "flexibility" if you prefer. The point is if you have zero supply inflation, liquidity shocks are magnified. there's no decentralized way to solve the problem, the best we can do is pick a small stable number to cushion liquidity shocks.

OK let me try to steelman your argument. Company a has liabilities due soon and must be financed. It usually does so by taking loans from a bank which is repaid by the proceeds from the final good they produce. There's a extrinsic shock that suddenly made company b unable to repay their loan to the same bank. Because of this the bank is unable to finance company a at the same rate. In a elastic money supply a government can increase the ms to increase the amount of currency units to reduce the cost of capital and stabilize prices so that company a can finish their production and the damages of company b failing is minimized. If you want to avoid a gov as money supply creator a bank could also just increase their own currency units Essentially you moved the risks of failure out of bank a into the currency in both cases. Sound right?