Means of Payment and Prices in Canada, 1900-46

Abstract

That the quantity of money in use by the community tends to rise and fall as the level of prices does, is (I believe) universally admitted. “The Quantity Theory of Money,” said J. M. Keynes in his Tract on Monetary Reform, “states that the amount of cash which the community requires, assuming certain habits of business and of banking to be established, and assuming also a given level and distribution of wealth, depends on the level of prices.” He might perhaps have added, as a summary of the discussion which with these words he introduces, “and vice versa.” Lord Keynes's own formulation of the dependence, n = p(k + rk′), expresses by way of a snapshot what Fisher's celebrated equation, MV + M′V’ = PT, expresses by way of a moving picture; that, the community's business and banking habits being assumed on the one hand, and on the other, the extent and distribution of its wealth, the quantity of money and the level of prices are proportional to one another. Open to argument remain such details as: how to define the quantity of money; and, whereby to measure the level of prices; and, how to judge of such changes in business and banking habits, or in the extent and distribution of wealth, as may change the quantity of money though prices were to stay constant, or raise or lower the price level though the quantity of money were kept unchanged.