Monday, 23 December 2013

The Quantity Theory of Money

By David Howden

Abstract: For an innocuous statement based on a trivial tautology, the quantity theory of money is sorely battered. This paper has three goals. First, it exposes the various flavours of the quantity theory as special cases of a simple application of the law of diminishing marginal utility. Second, it provides an overview of some typically controversial aspects of the quantity theory. Finally, it reformulates the quantity theory in light of these now resolved controversies. Although I use the term “quantity theory of money”, by the end of this article I reformulate the concept as an “exchange theory of velocity”.

Read the article here.