The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Quantity Theory of Money

  • Milton Friedman
Reference work entry


After formally setting out the quantity theory of money, including the distinction between the nominal quantity of money and the real quantity of money, and various quantity equations, this article considers the Keynesian challenge to the theory (which seemed vindicated during the economically successful 1950s and 1960s) and the revival of belief in the quantity theory in the 1970s as rapid monetary growth was accompanied by stagflation and rising interest rates. It deals with the natural rate hypothesis and the theory of rational expectations, surveys the empirical evidence, and ends with a consideration of policy implications.


American Economic Association Anticipated inflation Arbitrage Bretton Woods System Buffer stocks Cash–balance version of the quantity equation Commodity standards Credit Deflation Demand for money Demand–supply analysis Deposit-currency ratio Deposit-reserve ratio Easy money Excess balances Expectations Export subsidies Fiat money Fiscal policy Fisher, I. Foreign exchange controls Free banking Friedman, M. Full employment Great Depression High-powered money Human vs. non-human wealth Hume, D. Hyperinflation Import controls Income velocity Interest rate Keynes, J. M. Law of one price Liquidity Liquidity preference Lucas, R. Managed exchange-rate floating Mill, J.S. Modigliani, F. Monetary growth targeting Monetary illusion Monetary policy rules Monetary transmission mechanism Money Money multiplier Money supply Moneyness Muth, J. F. Natural rate hypothesis Natural rate of unemployment Neutrality hypothesis about stabilization policy Nominal interest rate Nominal quantity of money Phillips curve Price control Price indices Price revolution Price rigidity Quantity equations Quantity theory of money Rate of return on money Rational expectations Real interest rate Real quantity of money Ricardo, D. Sargent, T. J. Specie-flow mechanism Speculative motive Stagflation Static vs. long-run equilibrium Structural unemployment Thornton, H. Tobin, J. Transactions and precautionary motives Transactions velocity Transactions version of the quantity equation Variability of inflation Velocity of circulation Wage rigidity 

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Authors and Affiliations

  • Milton Friedman
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