ABSTRACT
This chapter describes and analyzes the historical development of the quantity theory of money since it was first articulated in the sixteenth century. It discusses the application of the quantity theory in various economic episodes, in particular the periods of economic upheavals including the Great Depression and the Great Recession. According to Richard Cantillon, the basic concept of the quantity theory had become a commonly accepted doctrine. Milton Freidman surprised a lot of people in 2003 when he told Simon London, the Financial Times reporter, the use of quantity of money as a target has not been a success. While some writers misinterpreted Friedman's statement as a repudiation of the quantity theory of money. The quantity theory poses a serious challenge to the practitioners of monetary policy: how to apply the theoretical apparatus of the quantity theory of money in an economy that is always evolving and no one knows how economic variables would react to monetary changes.
