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Alfred Marshall and the quantity theory of money

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  • Thomas M. Humphrey

Abstract

Marshall made at least four contributions to the classical quantity theory. He endowed it with his Cambridge cash-balance money-supply-and-demand framework to explain how the nominal money supply relative to real money demand determines the price level. He combined it with the assumption of purchasing power parity to explain (i) the international distribution of world money under metallic standards and fixed exchange rates, and (ii) exchange rate determination under floating rates and inconvertible paper currencies. He paired it with the idea of money wage and/or interest rate stickiness in the face of price level changes to explain how money-stock fluctuations produce corresponding business-cycle oscillations in output and employment. He applied it to alternative policy regimes and monetary standards to determine their respective capabilities of delivering price-level and macroeconomic stability. In his hands the theory proved to be a powerful and flexible analytical tool.

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  • Thomas M. Humphrey, 2004. "Alfred Marshall and the quantity theory of money," Working Paper 04-10, Federal Reserve Bank of Richmond.
    • Handle: RePEc:fip:fedrwp:04-10
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    References listed on IDEAS

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    1. David E.W. Laidler, 2016. "The Golden Age of the Quantity Theory," Economics Books, Princeton University Press, edition 1, number 4959.
    2. Laidler, David, 1988. "Alfred Marshall And The Development Of Monetary Economics," University of Western Ontario, Departmental Research Report Series 8809, University of Western Ontario, Department of Economics.
    3. Laidler,David, 1999. "Fabricating the Keynesian Revolution," Cambridge Books, Cambridge University Press, number 9780521641739.
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    Cited by:

    1. Jeremy Srouji, 2021. "Why is World Money World Money? A View from the Functions of Money," GREDEG Working Papers 2021-44, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    2. Meyer Danie Francois & Chipeta Chama & Camel Richard Thabang Mc, 2018. "An Analysis of the Effectiveness of Interest Rates to Facilitate Price Stability and Economic Growth in South Africa," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 63(3), pages 68-90, December.
    3. Saccal, Alessandro, 2021. "Mechanical analyses and derivations of money velocity," MPRA Paper 110772, University Library of Munich, Germany.

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