Studies in the Quantity Theory of Money Edited by Milton Friedman P561 $4.75 Studies in the Quantity Theory of Money This volume is a publication of the Workshop in Money and B"nking * ECONOMICS RESEARCH STUDIES of the ECONOMICS RESEARCH CENTER of the UNIVERSITY OF CHICAGO Studies in the Quantity Theory of Money Edited by MILTON FRIEDMAN With Essays by MILTON FRIEDMAN PHILLIP CAGAN JOHN J KLEIN EUGENE M LERNER RICHARD T SELDEN THE UNIVERSITY OF CHICAGO & CHICAGO LONDON PRESS 60637 The University of Chicago Press, Ltd., London THE UNIVERSITY OF CHICAGO PRESS, CHICAGO © 1956 by The University of Chicago All rights reserved Published 1956 Printed in the United States of America 81 80 79 78 77 1110987 International Standard Book Number: 0-226-26404-1 (Clothbound) Library of Congress Catalog Number: 56-10999 Table of Contents I THE QUANTITY THEORY OF MONEY-A RESTATEMENT MILTON FRIEDMAN Page3 II THE MONETARY DYNAMICS OF HYPERINFLATION PHILLIP CAGAN Page 25 III GERMAN MONEY AND PRICES, 1932-44 JOHN J KLEIN Page 121 IV INFLATION IN THE CONFEDERACY, 1861-65 EUGENE M LERNER Page 163 v MONETARY VELOCITY IN THE UNITED STATES RICHARD T SELDEN Page 179 INDEX Page 261 v I The Quantity Theory ofMoney-A Restatement MILTON FRIEDMAN The Quantity Theory of Money-A hE Restatement quantity theory of money is a term evocative of a general approach rather than a label for a well-defined theory The exact content of the approach varies from a truism defining the term "velocity" to an allegedly rigid and unchanging ratio between the quantity of money-defined in one way or another-and the price level-also defined in one way or another Whatever its precise meaning, it is clear that the general approach fell into disrepute after the crash of 1929 and the subsequent Great Depression and only recently has been slowly re-emerging into professional respectability The present volume is partly a symptom of this re-emergence and partly a continuance of an aberrant tradition Chicago was one of the few academic centers at which the quantity theory continued to be a central and vigorous part of the oral tradition throughout the 1930's and 1940's, where students continued to study monetary theory and to write theses on monetary problems The quantity theory that retained this role differed sharply from the atrophied and rigid caricature that is so frequently described by the proponents of the new income-expenditure approachand with some justice, to judge by much of the literature on policy that was spawned by quantity theorists At Chicago, Henry Simons and Lloyd Mints directly, Frank Knight and Jacob Viner at one remove, taught and developed a more subtle and relevant version, one in which the quantity theory was connected and integrated with general price theory and became a flexible and sensitive tool for interpreting movements in aggregate economic activity and for developing relevant policy prescriptions To the best of my knowledge, no systematic statement of this theory as developed at Chicago exists, though much can be read between the lines of Simons' and Mints's writings And this is as it should be, for the Chicago tradition was not a rigid system, an unchangeable orthodoxy, but a way of looking at things It was a theoretical approach that insisted that money does matter-that any interpretation of short-term movements in economic activity is likely to be seriously at fault if it neglects monetary changes and repercussions and if it leaves unexplained why people are willing to hold the particular nominal quantity of money in existence The purpose of this introduction is not to enshrine-or, should I say, inter-a definitive version of the Chicago tradition To suppose that one TABLE C1-Continued Year V-39 V-41 V-40 1943 1.34 1944 1.16 1945 99 1946 99 1947 1948 1949 1950 1951 V-42 V-43 1.39 1.22 1.01 95 1.08 1.20 1.15 1.24 1.39 1.51 1.35 1.13 1.06 1.20 1.30 1.29 1.37 1.53 TABLE C2 NEW QUARTERLY ESTIMATES OF INCOME VELOCITY FOR THE UNITED STATES Qu.arter V-44 V-45 Quarter V-44 V-45 Quarter 1943-1 390 383 368 350 412 406 397 394 1946-1 234 251 265 279 254 269 295 319 1949-1 1944-1 349 350 326 321 375 375 360 365 1947-1 299 292 296 304 299 314 320 355 1945-1 309 307 207 250 336 334 299 290 1948-1 306 326 333 334 324 340 356 383 253 V-44 V-45 314 317 318 310 339 341 350 362 1950-1 308 332 353 367 338 353 384 416 1951-1 366 379 386 384 406 408 413 435 TABLE C3 MONEY FIGURES USED IN COMPUTING V-39 TO V-43 MoNEY (IN MILLIONS oF DoLLARs) YEAR V-39 1839 257 1849 306 1859 708 1869 2,115 1879 2,889 1889 4,871 1899 8,222 1900 1901 1902 V-40 V-41 V-42 V-43 ········ ············ ············ 8,222 9,150 10,321 11,153 1903 1904 1905 1906 1907 1908 1909 16,094 1910 1911 1912 11,769 12,257 13,532 14,452 15,444 15,059 16,094 17,294 18,104 19,229 1913 1914 1915 1916 1917 1918 36,036 1919 1920 1921 1922 19,759 20,367 21,027 24,591 28,480 31 '771 36,026 40,118 38,032 39,251 19,759 20,367 21,027 24,591 28,480 31 '771 36,036 40,118 38,032 39,251 1923 1924 1925 1926 1927 1928 1929 55,411 1930 1931 1932 42,989 44,772 48,552 50,782 52,471 54,902 55,411 54,626 53,145 45,637 42,989 44,772 48,552 50,782 52,471 54,902 55,411 54,626 53,145 45,637 55,411 54,498 52,173 46,379 55,411 54,498 52,173 46,379 41,992 48,976 52,849 58,239 60,796 59,728 64,450 69,372 77,408 84,440 43,109 47,980 53,031 57,935 60,491 60,610 64,656 69,807 77,368 88,100 43,109 47,980 53,031 57,935 60,491 60,610 64,656 69,807 77,368 88,100 1933 41,992 1934 48,976 1935 52,849 1936 58,239 1937 60,796 1938 59,728 1939 69,815 1940 1941 1942 ··········· ········ 16,094 17,294 18,104 19,229 254 TABLE C3-continued MONEY (IN MILLIONS OF DoLLARS) YEAR V-39 V-41 V-40 1943 112,884 1944 139,118 1945 165,662 1946 174,321 1947 1948 1949 1950 1951 V-42 V-43 113,417 139,433 165,948 174,270 169,622 172,486 172,133 177,264 184,555 113,417 139,433 165,948 174,270 169,622 172,486 172,133 177,264 184,555 TABLE C4 MONEY FIGURES USED IN COMPUTING Quarter Money (in Billions of Dollars), V-44 and V-45 V-44 AND V-45 Money (in Billions or Dollars), V-44 and V-45 Quarter Quarter Money (in Billions or Dollars), V-44 and V-45 ; 1943-1 103.6 110.7 116.8 125.6 1946-1 179.2 176.5 173.7 172.3 1949-1 172.4 169.9 170.8 173.3 1944-1 129.1 131.9 141.9 145.3 1947-1 169.4 167.3 168.8 172.5 1950-1 174.4 174.3 176.4 178.7 1945-1 153.8 156.2 166.1 169.8 1948-1 172.4 170.4 171.9 173.3 1951-1 180.6 181.2 183.0 187.8 255 TABLE C5 SOURCES OF DATA USED IN NEW ESTIMATES OF INCOME VELOCITY Series Sources of Data V-39 Income: Same as V-27 Money: See Table C6, below Income: "Total Realized National Income," from National Industrial Conference Board, National Income of the United States, Table Money: "Total Deposits Adjusted and Currency outside Banks," Board of Governors of the Federal Reserve System, Banking and M onetary Statistics, Table 9, plus "Treasury Cash" and "Treasury Deposits with Federal Reserve Banks," ibid., Table 104, for 1914-38, and Annual Report of the Secretary· of the Treasury, 1947, p 479, "Money Held in Treasury" minus amounts held in trust against gold and silver certificates and against United States notes Figures are for June call dates wherever possible Income: "National Income," U.S Department of Commerce estimates For 1909-28, published in U.S Congress, Senate, Committee on Banking and Currency, Print No.4 (79th Cong., 1st sess [1945]), Basic Facts on Employment and Production, Table E-2 For 1929-46, "National Income," U.S Department of Commerce, Survey of Current Business, National Income Supplement, July, 1947, Table VII ("former concept, statistically revised") Money: For 1909-38, same as V-40; for 1939-46, Federal Reserve Bul· letin Income: "National Income," U.S Department of Commerce, Survey of Current Business, National Income Supplement, 1951, Table 1; minus the items listed inn 152 Figures for 1951 obtained from the 1952 Commerce revisions, Survey of Current Business, July, 1952 Money: For 1929-41, sum of "Total Deposits Adjusted and Currency outside Banks," Banking and Monetary Statistics, Table 9, "Treasury Cash," ibid., Table 104, and "Treasury Deposits with Federal Reserve Banks," ibid., Table 104 Computed by summing June 30 figures and dividing by two For 1942-51 the same procedure is applied to similarly defined money components derived from Federal Reserve Bulletin Income: "Net National Product," same source as V-42, with identical adjustments Money: Same as V-42 Income: "National Income, by Distributive Shares, Quarterly," U.S Department of Commerce estimates For 1943-48, Survey of Current Business, National Income Supplement, 1951, Table 40 For 1949-51, Survey of Current Business, July, 1952 Money: Same components as V-42 Quarterly averages of monthly figures from Federal Reserve Bulletin, computed in the following way: sum of one-half of figure for last month in preceding quarter, figures for first two months of current quarter, and one-half of figure for last month in current quarter; this sum is divided by three All figures are for end of month or last Wednesday in each month Income: "Net National Product, Quarterly." For 1943-48, obtained from U.S Department of Commerce estimates for "Gross National Product, Quarterly," by deducting "capital consumption allowances," Survey of Current Business, National Income Supplement, 1951, Table 46 For 1949-51, same source as V-44 Money: Same as V-44 V-40 V-41 V-42 V-43 V-44 V-45 256 N _ (It *Sources: Item 1: 1839-1959, Annual Report of tilt Comptroller of the Currency, 19ZO, Vol II, Table 24; 1869-89, Annual Report oftheSecretaryofthe Treasury, 1947, Table 88 Item Z: 1839-59, Ann11al Report of the Comptroller of the Currency, 1876, p xcv; 1869-89, A Piatt Andrew, Statistics for tilt United States, 1867-1909, Table II "Bank-held Bank Notes" for 1869 are from the Comr)troller's report for 1876, p (national banks only) Item 4: 1839-59, Annual Report of the Comptroller of the Currency, 1876, p xcv; 1869, Annual Report of the Federal Deposit Insurance Corporation, 1934, Table 45; 1879-89, Andrew, op cit., Tables and 11 219,704 45,133 27,373 147' 198 90,240 13,344 Currency outside the Treasury Less: Bank specie Bank-held bank notes Currency outside banks (item less item 2) Individual deposits, state banks Individual deposits, savings banks Individual deposits, national banks Individual deposits, trust companies Individual deposits, private banks Total individual deposits (sum of items to 8) 10 Total privately held money (sum of items and 9) 11 U.S Government deposits 12 U.S Government currency holdings 13 Total money (denominator of V-39) (sum of items 10, 11, and 12) 232,558 43,619 12,708 176,231 91 '179 36,074 1849 438,968 104,538 18,858 315,572 259,568 128,658 1859 740,641 149,200 11,524 579,917 361,140 457,675 574,300 1869 891,962 507,100 1,425,230 1,442,100 299,600 83,200 3,757,230 4,649,192 43,091 178,311 628,432 410,276 802,490 648,900 75,900 2,889,041 Item 5: 1839, estimated by distributing increase between 1830 and 1840 evenly over the decade; figures for 1830, 1840, and 1849-89 are from Annual Report of tilt Comptroller of the C11rrency, 19ZO, I! 241 Item 6: 1869-89, Andrew, op cJI., Table Item 7: 1879-89, ibid llem 8: 1889, ibid Item II: 1839, David Kinley, The Independent Treasury of tilt United Stales and Its Relations to the Banks of the Country (U.S Congress, Senate Doc 587 (61st Cong., 2d sess (1910)J), pp 81-82; 1869-89, Andrew, op cit., Table Item IZ: 1839-59, same as item I; 1869-89, same as item 2,114,748 257,241 708,137 1,937,566 2,565,998 208,034 115,009 4,870,594 1,380,362 488,400 818,632 190,200 103,584 127,584 388,226 ,393,115 250,782 303,484 703,798 1,973,032 3,992 ····· 8,598 133,118 2,467 2,185 4,339 305,669 1889 ·········· 1879 1839 Component (In Thousands of Dollars) DERIVATION OF DENOMINATOR OF V-39, 1839-89 TABLE C6* Intkx Index Aenentrout, Charles, 170 n Andrew, A Piatt, 245-46, 257 n Angell, James W., 183-84, 186 89, 207 n., 222,239,241,245,250 Bailey, Martin J., 82 n Barter, 171, 175 Becker, Gary, 2Q-21, 25 n Beckhart, B H., 99 n., 100 n Behrman, J N., 196 97 Black markets, 141-42 Brill, Daniel H., 224 n Brown, A J., 63 n., 202 n Burns, Arthur F., 187 n., 190, 192 n., 194n Cagan, Phillip, 16, 18-21 Cambridge cash-balances equation, 28, 180,195,232 Cash balances; see Real cash balance series Chandler, Lester V., 183, 185, 188, 211 n., 251 Change in prices; see Expected rate of change in prices Clark, Colin, 127 n Cleveland, William C., 106 n Coefficient of expectation as affected by past inflations, 6o-62 definition of, 37-41 estimates of, 43, 45, 51 increases of, during inflation, 58-60 see also Expected rate of change in prices Controls, price, and production effect on cash balances of, 126, 128-31, 146 48, 157-59 in Germany, 123-25, 137, 153-57 in Italy, 126 in United Kingdom, 126 27 in United States, 129 Copeland, Morris A., 241 Cost-price spiral, 9o-91 Costs of holding money differential between short- and longterm rates data on, for United States, 213 effect of, on demand for money, 212, 214,217-18,221,225,227-31 methods of measuring, 212, 214 as the price of money substitutes, 19, 208-9 return on bonds data on, for United States, 200, 220 effect of, on demand for money, 201, 203, 205, 214-15, 217, 219-20, 225,227-31 methods of measuring, 197-201 return on commodities data on for Austria, 98 for Germany, 102-3 for Greece, 107 for Hungary, 108, 110 for Poland, 112 for Russia, 115-16 for United States, 200, 220 effect of, on demand for money, 31, 33,87-88,201,203,205,219-20, 225,227-31 methods of measuring, 31, 37, 39,8788,202 return on common stocks data on, for United States, 200, 204, 220 effect of, on demand for money, 201, 203,205,208,219-20,227-31 methods of measuring, 197-203 Counterfeit currency in Confederacy, 168 in hyperinflations, 47, 96 n Currency; see :Money, stock of Currency reform; see Monetary reform Currie, Laughlin, 183, 184, 189, 239, 241 Davidson, J D., 170 Dean, Robert, 233 n Delivanis, Dimitrios, 106 n Demand for money by business firms, 11-14 effect on of alternatives; see Costs of holding money of complements, 209 of expectations of duration of inflation, 20, 76 77 of future income, 19, 208 261 262 Studies in the Quantity Theory of Money Demand for money-continued of monetary reform, 55-57, 90, 172 of price changes; see Expected rate of change in prices of unemployment, 225, 230 of :financial transactions, 222-24, 227-28,232 of other currencies, 51, 53 of pay periods, 13 of population movements, 8-9, 229 of price controls, 137,146-48, 15Q-51, 157-59, 229-30 of rapidity of transportation, 211 of real per capita income, 18, 29, 53, 205-7,217-18,221,227,230 of real wealth, 4, 29 of tastes, 207 of transportation disruptions, 15o51, 156-57, 159 elasticity of definition of, 35 estimates of, 43, 45, 51, 63-64, 87-88 in last stages of hyperinflation, 55-57 formulations of, 3-15, 27-35, 18Q-81, 205-12 importance of "asset" over "transactions" motive in, 216-17, 224-25, 227, 23G-31 see also Velocity Denison, Edward F., 141 n Deposits, correction for, 51; see also Money, stock of Des Essars, Pierre, 183 Dessirier, Jean, 117 n Doblin, Ernest, 187 n Durand, David, 197 Ellis, Howard S., 207 n., 216 n., 233 n Employment 122-23 Eucken, Walter, 124 n Evans, Clement A., 174 Exchange rates, depreciation of, 9o-91 Expectations of monetary reform; see Monetary reform Expected income, 19, 208 Expected rate of change in prices based on past price changes, 37-41 characteristics of weighting pattern, 41 as a cost of holding money, 31-35, 208 estimates of, 97-98, 102, 107-8, 110, 112, 115 lags in forming expectations, 41, 73-74 see also Coefficient of expectation Fand, David I., 21 Fellner, William J., 183, 184, 245 Fiscal policy of Confederacy, 163-69 of Germany (1932-44), 137, 151-53 Fisher, Irving, 180 n., 181 n., 183, 187-88, 205 n., 211, 232 "Flight from money"; see Self-generating price increases Float, 211, 245 Friedman, Milton, 19 n., n., 170 n., 202n Funk, Walther, 155 Gallatin, Albert, 246 Garvy, George, 182 n., 219 n "General price stop," 122, 153-54 Goldenweiser, E A., 183, 185, 251 Gordon, R A., 183, 185, 238, 251 Graham, Frank, 90 n., 105 n Greenwood, A B., 165 Gregg, William, 171 n Grilnig, Ferdinand, 141 n Guillebaud, C W , 132 n Halm, George N., 188 Hamilton, Earl J., 25 n., 172 Hamilton, Sir William, 179 n Hansen, Alvin H., 183, 185, 186, 205 n., 251 Haraldson, Wesley C., 141 n Harrod, Roy F., 179 Hart, Albert G., 183, 184, 186-89, 207 n., 219, 243, 248-51 Hart, B 1., 58 n Hicks, J R., 206 n., 207 n., 233 Hitler, Adolf, 151, 153 Holtrop, M W., 179 n Hyperinflation in Austria, 26, 28, 42, 51, 97-100 definition of, 25 effects of on cash balances, 27 on real income, 53 in Germany, 26, 30, 44, 51, lOQ-106 in Greece, 26, 32, 46, 106-7 in Hungary, 26, 34, 36, 48, 5Q-51, 10811 in Poland, 26, 38, 51-52, 111-14 in Russia, 26, 40, 54, 114-17 theory of, 86-90 see also Expected rate of change in prices; Self-generating price increases; Taxes on cash balances Idle balances, 14; see also Demand for money ' Index Income expected, 19 in kind, 10 national; see National income series real data on for Confederacy, 174 for Germany, 105, 139-42, 148-50 for Hungary, 111 for Poland, 114 for Russia, 117 for United States, 213 effect of, on demand for money, 53, 217-18, 221, 225 Inflation in Confederacy, 163-75 effects of on cash balances, 25, 43, 62-63, 17374 on creditors, 17Q-71 on use of barter, 171, 175 preceding hyperinflation, 61 see also Hyperinflation; Repressed inflation Interest rates; see Costs of holding money Jacobs, Alfred, 141 Jevons, W Stanley, 183 Jordan, Jack, 170 Katzenellenbaurn, S S., 115 n., 117 n Kemmerer, E W., 183 Kessel, Reuben, 10 n Keynes, John M., 17, 174, 180n., 182, 199 n., 205 n., 207 n., 211 n., 232-33, 235, 238 Kinley, David, 257 n Kisselgoff, Avram, 202 n Klein, John J., 17-18, 121 n., 140 n., 142 n Klein, Lawrence R., 206 n Knight, Frank, Koopmans, T C., 71 n 116 n., 181 n., 208 n., 135 n., Lags in adjustment of cash balances, 74-76, 87 in forming price expectations, 73-74, 87 owing to expected duration of inflation, 76-77 Lerner, Eugene M., 17, 164 n., 169 n Lewis, H Gregg, 25 n Lincoln, Abraham, 164 Livermore, Thomas L., 174 263 Lutz, Friedrich, 207 n Lutz, Vera, 106 n Macauley, F R., 197 McCormick, Cyrus H., 171 McCormick, William S., 171 McHugh, Loughlin F., 200 n McKean, Roland N., 183, 185, 209, 249,251 Makower, H., 198 n., 209 n Mancini, Marcello, 126 n Marget, Arthur W., 179 n., 181 n., 182, 216 n., 235 Marschak, Jacob, 25 n., 65 n., 198 n., 209 n Marshall, Alfred, 180 n., 202 n., 205 n Martin, Robert F., 221 n Meiselman, David, 21 Memminger, Christopher G., 163-74 Merlin, Sydney, 154 n Mints, Lloyd W., 3, 207 n Mitchell, Wesley C., 190, 192 n., 194 n Mobilization, wartime, 155, 174-75 Monetary reform, effects of expected in Confederate inflation! 172 in hyperinflations, 55-5t, 90 Money demand for; see Demand for money stock of in Austria, 97-100 in Confederacy, 167-69 in Germany, 101,.104-6,121-22, 13135 in Greece, 106 in Hungary, 108-11 on including time deposits in, 134, 237 in Italy, 125 in Poland, 111-14 in Russia, 114-15 in United Kingdom, 127 in United States, 129 see also Real cash balance series supply of by banks, 78-79, 165, 169-70 by governments, 77-78, 167-69, 172 independent of demand, 17, 91 Money substitutes, 208-10, 221, 225 Moore, A B., 164-65 National income series for Germany adjusted, 149-50 official, 121-22 for United Kingdom, 127 for United States, 129 see also Income, real 264 Studies in the Quantity Theory of Money Nerlove, Marc, 25 n., 74 n Neuman, J von, 58 n Nogaro, Bertrand, 85 n., 111 n Oliver, Elma, 242 n., 249 n Papen, Franz von, 151 Payment in kind; see Barter Petty, Sir William, 179 n Pietranera, Guilio, 125 n Pigou, A C., 181 n., 232 n Price change, expected rate of; see Expected rate of change in prices Price indexes bias in, 47, 49, 137-38 data on for Austria, 97 for Confederacy, 171 for Germany, 100, 121-22, 137-38, 140, 142-43 for Greece, 106 for Hungary, 108, 110 for Italy, 125 for Poland, 111 for Russia, 114 for United Kingdom, 127 for United States, 129 implied by average denomination of money, 142-46 by real income series, 138-42 Prokopovicz, Serge N., 117 n "Quantity theorists," 3, 15-17 Quantity theory of money essentials of, 15-17 formulations of, 4-15, 27-35, 18Q-81, 205-12 see also Demand for money Rate of change in prices; see Expected rate of change in prices Real-bills doctrine, 17 Real cash balance series for Austria, 98 for Confederacy, 173 for Germany, 102, 122, 147 for Greece, 107 for Hungary, 108, 110 for Italy, 125 for Poland, 112 for Russia, 115 for United Kingdom, 127 for United States, 129 see also Demand for money Real income; see Income, real Repressed inflation characteristics of, 124 correct dating of in Germany, 124 in United Kingdom, 128 in United States, 129 description of in Germany, 124 in Italy, 125-26 in United Kingdom, 126-27 in United States, 128-30, 227-29 effects of on cash balances, 126, 128-29 on income velocity, 128, 130, 227-28 Robertson, D H., 180 n Robinson, Joan, 90 n Rogers, James Harvey, 90 n Rompe, F., 138 n "Runaway inflation"; see Self-generating price increases Schwartz, Anna, 243 n., 249 n Selden, Richard T., 18-20 Self-generating price increases affected by lag in expectations, 63-67 evidence on, 69-73 indicated by "reaction index," 64-68 Shapiro, Solomon, 224 n Simons, Henry, Smith, J Ralph, 171 n Snyder, Carl, 187 n., 194 n., 222 n Speer, Albert, 155 Stewart, Dugald, 179 Stigler, George ]., 223 n Stocking, George W., 223 n Substitute moneys; see Money substitutes Supply of money; see Money, supply of; Money, stock of Suppressed inflation; see Repressed inflation Tastes, effect of, on demand for money, 207 Taxation, 137, 152, 163-65; see also Fiscal policy Taxes on cash balances estimates of, 77-86, 89-90 optimum rate of, SQ-81 Thian, Raphael P., 165 n., 171 n Tobin, James, 196-97 Transactions motive; see Demand for money; Velocity, transactions Tucker, Rufus, 222 n ' Index Unemployment; see Demand for money, effect on, of unemployment Varga, Stefan, 110 Velocity income cyclical movements in, 192-94 data on for Germany, 122, 124, 160 for United Kingdom, 127 for United States new series, 129, 186-87, 253-57 old series, 238-51 definitions of income concepts used in, 235-36, 240-43 money concepts used in, 237, 23840 treatment of government sector in, 237-38,239-40,242-43 seasonal movements in, 192-94 secular trend in measures of, 187-91 owing to real-income effect, 18, 205-7,217-18,221,22i,230 wartime movements in, 192, 194-95, 227-29 sector, 233, 235, 238 transactions effects on of financial transactions, 222-24, 227-28,232 of "income in kind," 222, 226, 228, 235-36 of interfirm payments, 222-23, 226, 228 of relative price movements, 222, 226,228 265 as a measure of transactions demand, 216-17, 224-25, 227, 230-31 methods of measuring, 218-19 theoretical limitations of, 12, 234-35 "virtual " 187 see also Demand for money; Real cash balance series Villard, Henry H., 183, 185, 188, 245, 251 Viner, Jacob, Wage-price spiral, 90-91 Wald, Haskell, 196-98 Walre de Bordes, J van, 96 n., 97, 99 n., lOOn Warburton, Clark, 183, 184, 185, 18692, 194, 196-98, 205 n., 243, 245-47, 250 Watkins, Myron W., 223 n Weighting pattern; see Coefficient of expectation Wernette, J Philip, 183, 184, 186, 18889, 205 n., 246, 250-51 Whale, P Barret, 105 n Wicksell, Knut, 187 n., 188, 211 n Wilks, S S., 94 n Willis, H Parker, 99 n., 100 n Wolf, Edward, 152 n Young, John Parke, 108 n., 109 n., 111 n., 114 n Zelder, Raymond, 21 Economics Studies in the Quantity Theory of Money This work provides a systematic statement of the theoretical position of the Chicago school on monetary economics Milton Friedman restates the quantity theory of money and discusses the significance of its revival after a period of eclipse by the Keynesian view Four empirical studies by Phillip Cogan, John J Klein, Eugene M Lerner, and Richard T Selden are provided in support of the theory The four studies-of inflation during and after the world wars and in the United States over the past century-show a striking regularity in economic response to monetary change They will be of particular interest to monetary theorists, to empirical investigators in this area, and to economic historians and theorists generally "The five essays that make up this book represent a bold and, to this reviewer, a successful effort to restore the respectability of the quantity theory All of the papers are models of excellence, and there is enough in any one to justify a substantial review." -Edward C Simmons, Southern Economic Journal " This is an interesting, well written, and ingenious book on a highly emotional subject all the papers bear the mark of high economic literacy." -F H Hahn, Econometrica MILTON FRIEDMAN is Paul S Russell Distinguished Service Professor of Economics at the University of Chicago, a member of the research staff of the National Bureau of Economic Research, and a contributing editor to Newsweek magazine Paper ISBN :0-226-26406-8 A Phoenix Book published by the University of Chicago Press ... assertion The quantity theory is in the first instance a theory of the demand for money It is not a theory of output, or of money income, or of the price level Any statement about these variables... VELOCITY IN THE UNITED STATES RICHARD T SELDEN Page 179 INDEX Page 261 v I The Quantity Theory ofMoney-A Restatement MILTON FRIEDMAN The Quantity Theory of Money- A hE Restatement quantity theory of money. .. equation So the only role of the stock of money and the demand for money is to determine the interest rate 19 The proof of this pudding is in the eating; and the essays in this book contain much