Marshall’s Monetary Theory
One of the central motivations of Marshall and his pupils in Cambridge (including Keynes up to the Treatise) was the desire to integrate monetary and value theory by means of the cash-balance equation. For Marshall the value of money is determined by the use of ordinary supply-and-demand curves in perfect accord with the same laws on which his general theory of value is based. In his own words ‘the value of [money] is determined by the relation in which the supply of it stands to the demand for it’ (1926, p. 177). Pigou later organised his famous essay on the ‘Value of Money’ (1917) under the successive subtitles ‘The Demand for Legal-Tender Money’, ‘The Supply for Legal-Tender Money’ and ‘Demand and Supply’. In his textbook on Money Robertson stresses the fact that ‘the theory of money [is] a special case of the general theory of value’ (1922, p. vii). Eventually Keynes emphasises approvingly in his 1924 Obituary Memoir that Marshall always taught ‘the quantity theory of money as a part of the general theory of value’ (JMK, x, p. 191, italics removed).1
KeywordsDiscount Rate Demand Curve Money Balance Cash Balance Loan Market
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