J. Laurence Laughlin and the Quantity Theory of Money

Abstract

In this paper the issues raised in the turn of the century American debate over the quantity theory of money are examined. J. Laurence Laughlin of Chicago, the leading anti-quantity theorist, provoked the controversty with his theoretical and empirical criticism of the quantity theory, while Irvine Fisher emerged as the chief defender of the monetary orothdoxy. Laughlin attacked the quantity theory position that a change in the quantity of money would cause a proportional change in prices. He argued that issues of convertible paper money in any single open economy would raise prices, but would instead lead to losses of hold through the balance of payments. The seperation of neutrality of money proposition into its two components, the neutrality proposition per sa and the exogeneity of money, isu sed to identify the essential features of the two sides of the debate.