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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. Laidler,David, 1999. "Fabricating the Keynesian Revolution," Cambridge Books, Cambridge University Press, number 9780521641739, May.
    2. Laidler, D., 1988. "Alfred Marshall And The Development Of Monetary Economics," UWO Department of Economics Working Papers 8809, University of Western Ontario, Department of Economics.
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    Keywords

    Economists ; Money;

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