The Quantity Theory of Money seems straightforward, but a little thought about it brings up many questions. Different economists have taken different approaches to it, so we have several Quantity Theories rather than one distinct Quantity Theory. In his many books Ludvig Von Mises discusses these theories extensively. He criticises some of them on various counts, for being too mechanical, for example. That doesn’t mean, though, that Mises doesn’t believe in any sort of Quantity Theory; he praises the general idea, saying that there’s a “core truth” in it. Mises rejected certain aspects of other Quantity Theories and embraced other aspects; he had his own Quantity Theory.
Anthony Evans and I have taken up this subject in a paper, we compare Mises version of the Quantity Theory to some others. Expectations of the future are closely related since they drive decisions to hold more or less money. We examine what Mises has to say about expectations and how this relates to his version of Quantity Theory. This puts the financial crisis of 2008 and it’s aftermath in a different light, something we discuss briefly.
The Theory of Money and Credit (1912) is a seminal book in the development of the Austrian school approach to monetary theory. We argue that Mises’ understanding of the quantity theory is distinct from both the Fisherian and Cambridge versions, and warrants recognition as a third, separate version. After supporting this claim we demonstrate how it can be utilised to make expectations the central channel of a quantity theory with microfoundations.
The draft paper is here:
Comments are welcome.