Chapter VI: The Quantity Theory of Prices. Introduction
THE quantity theory, in its usual formulations, is a theory, not of the value of money, in the absolute sense of value, but of the general price-level, the average price of goods exchanged for money. It is not a psychological theory. It does not deal with psychological quantities, or psychological forces. It is a mechanical theory, concerned simply with quantities, and the relations between them.
Chapter VII: Dodo-Bones
MUST money have value from some source outside its money-functions? It is a part of the quantity theory that this is unnecessary. I have cited, in the preceding chapter, Irving Fisher and J. S. Nicholson to this effect. Nicholson’s statement is interesting and picturesque, exhibiting the quantity theory in all the nakedness of its poverty, and I shall present it at some length.
Chapter VIII: The “Equation of Exchange”
IN Professor Irving Fisher’s Purchasing Power of Money1 we have the most uncompromising and rigorous statement of the quantity theory to be found in modern economic literature. We have, too, a book which follows the logic of the quantity theory more consistently than any other work with which I am acquainted.
Chapter IX: The Volume of Money and the Volume of Credit
JOHN STUART MILL, who first among the great figures in economics gives a realistic analysis of modern credit phenomena, thought that credit acts on prices in the same way that money itself does1 and that this reduces the significance of the quantity theory tendency greatly, and to an indeterminate degr
Chapter X: “Normal” vs. “Transitional” Tendencies
THE Quantity Theory, as a causal theory, is, then, little altered by the passage from a hypothetical, creditless economy to the actual world, where a vast deal of credit is used,—particularly in Professor Fisher’s hands. Of the different kinds of credit, only deposits subject to check are recognized as directly influencing prices, and deposits subject to check are controlled by the volume of money.
Chapter XI: Barter
IN the statement of the quantity theory, the proviso is commonly made that all exchanges must be made by means of money, or of money and bank-credit. Barter is excluded by hypothesis. If resort to barter were possible, then people might avert the fall in prices due to scarcity of money, or increase in trade, by dispensing with money in part of their transactions, and the proportional decrease in prices which the quantity theory calls for would be lacking. Is this assumption true?
Chapter XII: Velocity of Circulation
FOR the quantity theory, it is important to treat velocity of circulation of money and of deposits, as self-contained entities, really independent factors. This is true of Fisher’s theory. It is particularly necessary that V and V′ should vary from causes unconnected with M and M′. The V′s are to be a sort of inflexible channel, through which M and M′ run in their influence on the passive P, which is to rise or fall proportionately with them.
Chapter XIII: The Volume of Money and the Volume of Trade—Trade and Speculation
IN proving that an increase of money must proportionately increase prices, it is necessary to prove that the volume of trade is independent of the quantity of money and credit instruments by means of which trade is carried on. Money on the one hand, and quantity of goods to be exchanged on the other, are the two great independent magnitudes, whose equilibration mechanically fixes the average of prices.
Appendix To Chapter XIII: The Relation of Foreign to Domestic Trade in the United States
THE word, “trade,” as used in connection with statistics of foreign and domestic trade has been irritatingly ambiguous.
Chapter XIV: The Volume of Trade and the Volume of Money and Credit
IN the argument so far I have said nothing of the reverse relationship, the dependence of the volume of money and the volume of credit on trade. The two are indeed interdependent.
