ABSTRACT
On monetary policy, Henry Simons vacillated between favoring a rule expressed in terms of the quantity of money — for example, that the quantity of money be kept constant — and a rule expressed in terms of a price index — for example, that the authorities be instructed to keep the wholesale price index stable. These "cumulative maladjustments are likely to be peculiarly severe" "in an economy where most of the effective money is provided by private banks" because "the quantity of effective money, as well as its velocity, responds promptly and markedly to changes in business earnings. There is clearly great similarity between the views expressed by Simons and by Keynes — as to the causes of the Great Depression, the impotence of monetary policy, and the need to rely extensively on fiscal policy. Both men placed great emphasis on the state of business expectations and assigned a critical role to the desire for liquidity.
