The Golden Age of the Quantity Theory

The Golden Age of the Quantity Theory

Copyright Date: 1991
Pages: 236
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  • Book Info
    The Golden Age of the Quantity Theory
    Book Description:

    How did neoclassical monetary economics, as epitomized by the work of Fisher, Wicksell, and the Cambridge School, evolve from the classical orthodoxy that dominated economics in the 1870s? To answer this question, David Laidler considers the interaction of theoretical developments with contemporary policy debates about bimetallism and the evolution of the gold exchange standard. He argues that neoclassical monetary economics, in which the quantity theory of money played a central role, laid the intellectual groundwork for the replacement of the gold standard by various managed monetary systems in the years following World War I. Laidler is one of the world's foremost experts on monetary economics, and this book provides an illuminating account and analysis of one of the most important periods in the development of that field. Scholars of the history of economic thought and all monetary economists will find that The Golden Age of the Quantity Theory is the most systematic treatment of the development of monetary economics between 1870 and 1914 currently available.

    Originally published in 1991.

    ThePrinceton Legacy Libraryuses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These paperback editions preserve the original texts of these important books while presenting them in durable paperback editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.

    eISBN: 978-1-4008-6248-1
    Subjects: Business

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-x)
  3. Preface
    (pp. xi-xiv)
  4. Acknowledgements
    (pp. xv-xvi)
  5. 1 An overview
    (pp. 1-6)

    To the monetary economist, the period 1870–1914 was a golden age, in more than one sense. Most obviously and literally, in those years the Gold Standard developed from something close to an exclusively British institution into an international monetary system which even today is held up as a model of stability. But this was also the period in which the quantity theory of money, conceived of as a theory of the general price level, reached the peak of its development. In the years before World War I, both well-known formulations of that theory – the transactions approach mainly associated...

  6. 2 The orthodoxy of the 1870s
    (pp. 7-48)

    The early 1870s were rather quiet years in monetary economics. The great policy debates that dominated the development of the subject in the first half of the century had no real parallel in its third quarter, and by 1870 the effects of the gold discoveries in California and Australia of 1849–51 had been absorbed by the international economy, and analysed by economists; while the ‘Great Depression’ of prices, and the debates about bimetallism that were to accompany it had not yet begun. Moreover, though Marshall’s unpublished manuscript on ‘Money’ was probably written in 1871, and shows quite clearly that...

  7. 3 The neoclassical theory of the price level: the Cambridge School and Fisher
    (pp. 49-88)

    We have seen that in the early 1870s, there existed in Britain, a theory of monetary policy which complemented orthodox classical monetary theory. This theory of policy had two components. First it taught that the Gold Standard was the best foundation for the monetary system. Second, it suggested that apart from maintaining that standard, the appropriate authorities, the Bank of England as far as Britain was concerned, should limit their interventions in the system to those calculated to preserve its viability at times of financial crisis. Such interventions would normally involve the Bank lending freely at a penalty rate of...

  8. 4 The monetary element in neoclassical cycle theory
    (pp. 89-118)

    Many, perhaps most, developments in cycle theory during our period had little to do with monetary economics. This was particularly true in continental Europe where the socialist tradition in economic thought was more influential than in the English-speaking world; but even in Britain, a wide variety of non-monetary approaches to the cycle were investigated, including extensions of Jevons’ work on the ‘sunspot’ theory, the archetype of modern ‘real’ business-cycle theory, and the under-consumptionist analysis of Hobson (1894).¹ There was also Dennis Robertson’s (1915) analysis of the difficulties of co-ordinating real saving and investment decisions, in which monetary elements played a...

  9. 5 Wicksell and the quantity theory
    (pp. 119-152)

    Knut Wicksell’s work was seminal to intellectual developments that, in the twentieth century, were to discredit the quantity theory of money among the majority of academic economists. The dynamic economics of the Stockholm School started from his analysis of inflation as a cumulative process; so did the Austrian business cycle theory of Mises, Hayek and Robbins; and Keynes’Treatise on Money(1930) betrays an explicitly acknowledged Wicksellian influence, which also marks theGeneral Theory(1936). And yet Wicksell himself, in Bertil Ohlin’s (1936) words, ‘always insisted that this reasoning [the cumulative process model of inflation] did not mean more than...

  10. 6 Neoclassical monetary theory and monetary institutions
    (pp. 153-192)

    It was argued at the beginning of Chapter 3 that the development of neoclassical monetary theory before World War I could be expounded and understood independently of the debates about reform of the monetary system which provided its background, and I hope that this has now been demonstrated. Even so, the economists whose work I have discussed did contribute to those debates, and the nature of their contributions was largely determined by the theoretical understanding of monetary mechanisms described in the three previous chapters of this book. I have already suggested that the pioneers of neoclassical monetary economics were far...

  11. 7 A summing up
    (pp. 193-200)

    Monetary theory on the eve of World War I was very a different body of doctrine from that of the early 1870s. In the forty-five-year period covered by this book the following advances had taken place. The transactions version of the quantity theory had received a systematic algebraic formulation and its implications had been worked out with a degree of clarity that has no parallel in the literature of earlier classical orthodoxy. The alternative Cambridge supply and demand for money formulation of the theory had also been completely worked out (as had its Walrasian variant), though a fully fledged account...

  12. References
    (pp. 201-212)
  13. Name Index
    (pp. 213-216)
  14. Subject Index
    (pp. 217-220)