ABSTRACT
Joan Robinson never thought highly of the Quantity Theory of Money: "The archetypal quantity theory formula MV = PY, like any identity, has to have its terms defined in such a way as to make it hold." 1 She follows with a list of queries as to what the elements of the equation mean, designed to reveal the potential ambiguities. Once we have managed to set it up, however, we are still only halfway to a useful tool of analysis; the next problem is whether causality runs from left to right, as monetarists maintain, or from right to left:
Suppose that between one year and the next PY rises; either activity has increased—employment and output are higher this year than last, or the general price level has risen because of a rise in costs in money terms; then if the quantity of money has not increased, the velocity of circulation must have risen. 2
