ABSTRACT

Before it was called monetarism, the quantity theory of money was a favored doctrine of pre-Keynesian and Austrian economics. (Seechapter note 10.1, Political economics of the quantity theory of money.) By monetarism I mean the doctrine of the quantity theory of money that says: Because of the stable velocity of circulation, increasing supplies of money cause prices to rise. Early monetarists were assuming that full employment was a natural condition, or at least that a tendency toward full employment was a natural condition, or, as later monetarists argued, that there is a natural rate of unemployment that cannot successfully, i.e., in the long term be changed by fiscal policy. 1