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Quantity Theory of Money



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Quantity Theory is a foolproof theory. This Theory is based on Law of Conservation of Wealth. This Theory tests positive with Law of Mass Action of reversible economic (chemical) reactions. Study of utility ( I call utility as all that a human being needs) helps us understand Quantity Theory better. Utility and water have similarities. Water is a form of matter and utility is a form of wealth. Water is universal solvent and so is utility. All other forms of wealth dissolve in utility. Water is in the form of H + OH. Similarly utility exists in the form of Goods and services which are otherwise called as WANTS by economists + money and money related forms of wealth that are called as MEANS by economists. According to Law of Law of Conservation, value of wants = value of means. Any economic entity, be it an individual, a family, a society, a business firm, a state or a nation tries to attain equilibrium between wants and means. Quantity Theory is relevant to all branches of Economics.

Suggested Citation

  • B.V. Gopinath, 2005. "Quantity Theory of Money," Macroeconomics 0504003, EconWPA.
  • Handle: RePEc:wpa:wuwpma:0504003
    Note: Type of Document - doc; pages: 6. Quantity Theory is all about economic reaction between Goods and services that are called WANTS and money and money related forms of wealth that are called MEANS. This law is relevant to all branches of economics.

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    More about this item


    Law of Conservation of Wealth; Utility; Law of Mass Action of reversible chemical reactions; Economic reactions;

    JEL classification:

    • D1 - Microeconomics - - Household Behavior

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