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The eminent economist Irving Fisher, building upon work by Newcomb, developed the theory further in what has been called "The Golden Age of the quantity theory", [1] formalizing the equation of exchange and attempting to measure the velocity of money independently empirically.
It was Fisher who (following the pioneering work of Simon Newcomb) formulated the quantity theory of money in terms of the "equation of exchange:" Let M be the total stock of money, P the price level, T the number of transactions carried out using money, and V the velocity of circulation of money, so that:
It was popularized by John Maynard Keynes in the early twentieth century, and Irving Fisher wrote an important book on the subject, The Money Illusion, in 1928. [1] The existence of money illusion is disputed by monetary economists who contend that people act rationally (i.e. think in real prices) with regard to their wealth. [2]
The quantity theory of money adds assumptions about the money supply, the price level, ... The algebraic formulation comes from Irving Fisher, 1911. See also
Wicksell's main intellectual rival was the American economist Irving Fisher, who espoused a more succinct explanation of the quantity theory of money, resting it almost exclusively on long run prices. Wicksell's theory was considerably more complicated, beginning with interest rates in a system of changes in the real economy.
The theory was developed by Irving Fisher following the Wall Street crash of 1929 and the ensuing Great Depression. The debt deflation theory was familiar to John Maynard Keynes prior to Fisher's discussion of it, but he found it lacking in comparison to what would become his theory of liquidity preference. [1]
The Fisher equation plays a key role in the Fisher hypothesis, which asserts that the real interest rate is unaffected by monetary policy and hence unaffected by the expected inflation rate. With a fixed real interest rate, a given percent change in the expected inflation rate will, according to the equation, necessarily be met with an equal ...
The theories also differ in explaining the movement of money: In the classical version, associated with Irving Fisher, money moves at a fixed rate and serves only as a medium of exchange while in the Cambridge approach money acts as a store of value and its movement depends on the desirability of holding cash.