IDEAS home Printed from https://ideas.repec.org/a/fip/fedreq/00051.html
   My bibliography  Save this article

The Rise and Fall of the Quantity Theory in Nineteenth Century Britain: Implications for Early Fed Thinking

Author

Listed:
  • Robert L. Hetzel

Abstract

British monetary experience in the nineteenth century was extremely rich both in terms of the development of the quantity theory and in terms of the evolution of views of the role of the Bank of England in the international gold standard. One can ask, should or could the early Federal Reserve have learned from this experience? Especially during the Depression, why didn't the Federal Reserve understand its responsibility for the monetary contraction, deflation, and economic collapse it produced? Why didn't knowledge of the quantity theory, which developed in early nineteenth century Britain, prevent such a catastrophic mistake? A short answer is that the quantity theory, which flourished in the first part of the nineteenth century, disappeared as the gold standard became orthodoxy and the counterfactual of a paper money standard became heresy. There was then very little to guide the early Fed when it created a monetary standard that in reality was a paper money standard.

Suggested Citation

  • Robert L. Hetzel, 2016. "The Rise and Fall of the Quantity Theory in Nineteenth Century Britain: Implications for Early Fed Thinking," Economic Quarterly, Federal Reserve Bank of Richmond, issue Q4, pages 281-320.
  • Handle: RePEc:fip:fedreq:00051
    as

    Download full text from publisher

    File URL: https://www.richmondfed.org/-/media/richmondfedorg/publications/research/economic_quarterly/2016/q4/hetzel.pdf
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    as
    1. repec:ucp:bkecon:9780226519999 is not listed on IDEAS
    2. Eichengreen, Barry, 1987. "Conducting the international orchestra: Bank of England leadership under the classical gold standard," Journal of International Money and Finance, Elsevier, vol. 6(1), pages 5-29, March.
    3. Bordo,Michael D., 2005. "The Gold Standard and Related Regimes," Cambridge Books, Cambridge University Press, number 9780521022941, December.
    4. Thomas M. Humphrey, 1989. "Lender of last resort: the concept in history," Economic Review, Federal Reserve Bank of Richmond, vol. 75(Mar), pages 8-16.
    5. Wood,John H., 2005. "A History of Central Banking in Great Britain and the United States," Cambridge Books, Cambridge University Press, number 9780521850131, December.
    6. Thomas M. Humphrey, 1983. "Can the central bank peg real interest rates? : a survey of classical and neoclassical opinion," Economic Review, Federal Reserve Bank of Richmond, vol. 69(Sep), pages 12-21.
    7. Thomas M. Humphrey, 1990. "Fisherian and Wicksellian price-stabilization models in the history of monetary thought," Economic Review, Federal Reserve Bank of Richmond, issue May, pages 3-12.
    8. Thomas M. Humphrey, 1990. "Ricardo versus Thornton on the appropriate monetary response to supply shocks," Economic Review, Federal Reserve Bank of Richmond, vol. 76(Nov), pages 18-24.
    9. M Morys, 2010. "Monetary Policy under the Classical Gold Standard (1870s - 1914)," Centre for Historical Economics and Related Research at York (CHERRY) Discussion Papers 10/01, CHERRY, c/o Department of Economics, University of York.
    10. Arthur H. Leigh, 1974. "John Locke and the Quantity Theory of Money," History of Political Economy, Duke University Press, vol. 6(2), pages 200-219, Summer.
    11. Michael D. Bordo, 1990. "The lender of last resort : alternative views and historical experience," Economic Review, Federal Reserve Bank of Richmond, vol. 76(Jan), pages 18-29.
    12. Robert L. Hetzel, 1987. "Henry Thornton: seminal monetary theorist and father of the modern central bank," Economic Review, Federal Reserve Bank of Richmond, vol. 73(Jul), pages 3-16.
    13. Thomas M. Humphrey, 1999. "Mercantilists and classicals: insights from doctrinal history," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 55-82.
    14. Calomiris, Charles W. & Schweikart, Larry, 1991. "The Panic of 1857: Origins, Transmission, and Containment," The Journal of Economic History, Cambridge University Press, vol. 51(4), pages 807-834, December.
    15. David Laidler, 2000. "Highlights of the Bullionist Controversy," UWO Department of Economics Working Papers 20002, University of Western Ontario, Department of Economics.
    16. Thomas M. Humphrey, 1975. "The classical concept of the lender of last resort," Economic Review, Federal Reserve Bank of Richmond, vol. 61(Jan), pages 2-9.
    17. William Roberds, 2016. "Review of Making Money: Coin, Currency, and the Coming of Capitalism by Christine Desan," Journal of Economic Literature, American Economic Association, vol. 54(3), pages 906-921, September.
    Full references (including those not matched with items on IDEAS)

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedreq:00051. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/frbrius.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.