CHAPTER XV. The Quantity Theory: the "passiveness of Prices"

THE QUANTITY THEORY: THE "PASSIVENESS OF PRICES"

Heart of quantity theory: price-level cannot change without prior change in money, deposits, trade, or velocities: independently rising price-level, unable to alter trade or velocities, would drive money away, and so be unable to sustain itself; individual prices can rise independently, but other prices must fall to compensate 292-295

Criticism: argument impressive only because it assumes an uncaused rise in general price-level; when causes assigned, prices can independently rise, compelling modification in other factors in "equation of exchange"; "transitional" and "normal" effects: instances 295-299

Quantity theory conflicts with supply and demand: supply and demand holds good: particular prices and price-level 299-300

Generalization of conflict to include cost of production, capitalization theory, imputation theory 300

Capitalization theory vs. quantity theory; different psychological assumptions of the two theories 300-306

Cost of production vs. quantity theory; money-income vs. quantity of money 306-308

Quantity theory false, granting all its assumptions 308-310

Doctrine that price-level independent of particular prices, and presupposed by them, false; absolute value of money, not price-level, presupposed; price-level may change with value of money constant, through changes in absolute values of goods 310-314