Psychology Dictionary of ArgumentsHome
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| Quantity theory: The quantity theory of money (QTM) is a macroeconomic theory that states that the general price level of goods and services is directly proportional to the amount of money in circulation, or money supply. See also Monetarism, Price, Markets._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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John Maynard Keynes on Quantity Theory - Dictionary of Arguments
Kurz I 106 Quantity theory/Keynes/Sraffa/Kurz: „The real task of such a [monetary] theory [which] is to treat the problem dynamically, analysing the different elements involved, in such a manner as to exhibit the causal process by which the price level is determined, and the method of transition from one position of equilibrium to another.“ (CWK 5, p. 120)(1). The quantity theory of money in its various forms, Keynes insisted, was ill adapted for this purpose. He then proposed to break away from the conventional method of starting from a given quantity of money irrespective of the uses to which it is put. Instead he started from the flow of aggregate earnings or money income and “its twofold division (1) into the parts which have been earned by the production of consumption goods and of investment goods respectively, and (2) into the parts which are expended on consumption goods and on savings respectively”. (CWK 5, p. 121)(1). He maintained that if the two divisions (1) and (2) are in the same proportions, then the price level of consumption goods will equal their respective costs of production. If not, price level and costs will differ from one another, giving rise to (extra, or windfall) profits or losses in the consumption sector. The price level of consumption goods is said to be “solely determined by the disposition of the public towards ‘saving’” and “entirely independent of the price level of investment goods” (CWK 5, pp. 129 and 123)(1). The latter is said to depend on the public’s choice between “bank deposits” and “securities.” This is motivated in terms of the observation that the decision to hold the one or the other relates “not only to the current increment to the wealth of individuals, but also to the whole block of their existing capital”. (CWK 5, p. 127)(1). Kurz I 107 SraffaVsKeynes: Keynes was wrong in assuming that the effect of a fall in consumption demand would be an immediate and proportional fall in price, whereas an increased demand for securities would not appreciably raise their price. Keynes also overlooked the fact that a rise in the price of securities is a source of profits (equal to premiums) that would compensate firms for any losses due to a fall in consumption prices. Contrary to Keynes’s view, the price levels relating to industries producing investment and consumption goods were not independent of one another. In a system characterized by a circular flow of commodities, Keynes’s distinction lacks precision, because one and the same type of commodity may be used both as an investment and as a consumption good. How can the price of such a commodity be determined in two radically different and independent ways? More important, the two kinds of industries are typically intimately intertwined. 1. Keynes, J. M. (1971–1989). The Collected Writings of John Maynard Keynes, D. Moggridge (ed.), London: Macmillan. Kurz, Heinz D. „Keynes, Sraffa, and the latter’s “secret skepticism“. In: Kurz, Heinz; Salvadori, Neri 2015. Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). London, UK: Routledge._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
EconKeyn I John Maynard Keynes The Economic Consequences of the Peace New York 1920 Kurz I Heinz D. Kurz Neri Salvadori Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). Routledge. London 2015 |
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