THE FEDERAL RESERVE BOARD grimly pledges to squeeze harder than ever to hold down the growth of the money supply. Its chairman, Paul Volcker, assured Congress that the new rigor is not a mere passing phase but a policy for the years (plural) ahead. Tight money is a necessary part of any strategy to restrain inflation. But it is only part of a strategy, and it's important to note the limits of monetary policy.

You will frequently hear the argument that a sufficiently tight limit on the country's supply of money will stop inflation dead in its tracks. That is the voice of economic fundamentalism. Inflation, according to this school, is merely the result of a complaisant government's errors in letting too much money loose in its pursuit of easy popularity.

The fundamentalist theory is half right, in the sense that too loose a monetary policy speeds up inflation dangerously. But the reverse is not true -- for even a very tight monetary policy will not necessarily slow inflation down much.

The basic mistake in the fundamentalist theory is its assumption that the government totally controls the supply of money. But money is, after all, anything that buyers and sellers are willing to use as money. If the government squeezes the supply of one kind of money, the financial markets are very ingenious at inventing others. The simplest definition of money is currency plus demand deposits in banks. But there are futher definitions out through the other kinds of deposits and the negotiable bills and bonds that people -- not most people, but certain financial people -- use as money to pay each other. In the past several years it is the more esoteric varieties of money that have been expanding most rapidly.

Where does inflation come from? Inflation is the rise in the average of all prices, including the price of labor. Ending inflation means keeping that average at zero -- which means in turn that every price that rises must be balanced by the fall in some other price. The same thing holds for wages, as long as productivity fails to increase. But Americans have become very good at preventing any cuts in wages and in most prices. They have elevated the practice of no wage or price cuts into a principal of social equity.

People running for public office are now casting about desperately for remedies to inflation that do not threaten anyone with wage or price cuts. They increasingly grasp at mechanical solutions imposed by Washington. The panacea of choice on the right is to "stop printing money" -- just as, on the left, it is wage and price controls. Neither offers any real promise.