The Golden Age of the Quantity Theory: The Development of Neoclassical Monetary Economics. 1870-1914

237 Pages·2014·10.963 MB·English

by  David E.W. Laidler

The Golden Age of
the Quantity Theory

THE GOLDEN AGE
OF THE QUANTITY
THEORY
David Laidler
Princeton University Press
Princeton, New Jersey
© 1991 by David Laidler
Published by Princeton University Press,
41 William Street, Princeton, New Jersey 08540
All rights reserved
Library of Congress Cataloging-in-Publication Data
Laidler, David E. W.
The golden age of the quantity theory : the development of
neoclassical monetary economics. 1870-1914 / by David Laidler.
p. cm.
Includes bibliographical references and index.
ISBN 0-691-04295-0
1. Quantity theory of money. 2. Neoclassical school of economics.
I. Title.
HG226.6.L35 1991
332.4'01-dc20 91-15247
CIP
Printed in Great Britain
To Antje
'as things are, gold and silver have no natural value . . . their value is artificial,
because the demand for them as currency is itself artificial.' Alfred Marshall, 1887
'As the years go on it seems to become even clearer that there ought to be an
international currency; and that the - in itself foolish - superstition that gold is
the "natural" representative of value has done excellent service.' Alfred Marshall,
1923
Contents
Preface xi
Acknowledgements xv
Chapter 1 An overview 1
Note 6
Chapter 2 The orthodoxy of the 1870s 7
Introduction 7
The classical theory of the price level 8
The transmission mechanism 16
The classical theory of the cycle 20
Money and the balance of payments 26
Bimetallism 29
The theory of monetary policy 32
Concluding comments 40
Notes 43
Chapter 3 The neoclassical theory of the price level:
the Cambridge School and Fisher 49
Introduction 49
The quantity theory and the bimetallic controversy 50
The fundamentals of the Cambridge approach:
Marshall's 1871 note on 'Money' 53
Institutional influences on the price level 56
The stock demand for money 60
The Cambridge transmission mechanism 64
The basics of Fisher's analysis: the equation of
exchange and the quantity theory 68
Determinants of the elements of the equation
of exchange 71
viii CONTENTS
Fisher on the transmission mechanism 76
Statistical work 79
Conclusions 82
Notes 84
Chapter 4 The monetary element in neoclassical cycle theory 89
Introduction 89
The nominal-real interest rate distinction 90
Money wage stickiness 95
The Marshallian components of Hawtrey's cycle
theory 100
Hawtrey's theory of the cycle 104
Concluding comments 112
Notes 115
Chapter 5 Wicksell and the quantity theory 119
Introduction 119
Cost of production and the quantity theory 120
The pure cash economy 123
Credit and the velocity of money 127
Interest rates and inflation 129
The cumulative process and the quantity theory 135
Empirical evidence 139
Wicksell on the cycle 143
Wicksell's legacy 145
Notes 149
Chapter 6 Neoclassical monetary theory and monetary
institutions 153
Introduction 153
The spread of gold monometallism 154
The mechanics of bimetallism 156
Arguments for gold monometallism 159
The international dimension 166
Variations on bimetallism 170
Indexation 172
Wicksell on managed money 178
Central banking 180
Edgeworth on banking 184
Concluding comment 187
Notes 188
CONTENTS ix
Chapter 7 A summing up 193
Notes 199
References 201
Name Index 213
Subject Index 217