by Note: This is an unedited excerpt from my inflation primer manuscript.Even if we put aside the atypical argument that an increase in the money supply is how to define inflation, there is a widespread belief that increasing the money supply causes inflation (as normally defined). These beliefs can be traced back to what is termed the Quantity Theory of Money, which has a long history in economic thinking.I am extremely allergic to the Quantity Theory of Money. That said, my plan within this book is to stay away from theoretical controversies, and so will attempt to offer as neutral as possible description without inflicting too much pain on myself.Although I refer to this as The Quantity Theory of Money, there are a few variants, with a long history. My impression is that the most
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Note: This is an unedited excerpt from my inflation primer manuscript.Even if we put aside the atypical argument that an increase in the money supply is how to define inflation, there is a widespread belief that increasing the money supply causes inflation (as normally defined). These beliefs can be traced back to what is termed the Quantity Theory of Money, which has a long history in economic thinking.
I am extremely allergic to the Quantity Theory of Money. That said, my plan within this book is to stay away from theoretical controversies, and so will attempt to offer as neutral as possible description without inflicting too much pain on myself.
Although I refer to this as The Quantity Theory of Money, there are a few variants, with a long history. My impression is that the most reputable version of the theory is the “equation of exchange” variant. As I discuss below, this variant is not obviously wrong, rather it has the problem that it says very little in practice. As for the other variants, I mainly see various phrasings in popular discussion that have obvious defects, which are not tied to modern economic theory (at best, some garbled version of some dubious assertions made in mainstream Economics 101 textbooks).Bond Economics
Primer: Quantity Theory Of Money
Brian Romanchuk