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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:
The quantity theory of money adds assumptions about the money supply, the price level, ... The algebraic formulation comes from Irving Fisher, 1911. See also
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]
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 quantity theory of money dominated macroeconomic theory until the 1930s. Two versions were particularly influential, one developed by Irving Fisher in works that included his 1911 The Purchasing Power of Money and another by Cambridge economists over the course of the early 20th century. [13]
The Cambridge equation focuses on money demand instead of money supply. 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 ...
According to the quantity theory of money, inflation is caused by movements in the supply of money and hence can be controlled by the central bank if the bank controls the money supply. The theory builds upon Irving Fisher's equation of exchange from 1911: [50] = where