The Methodological Roots of J. Laurence Laughlin's Anti-quantity Theory of Money and Prices

Abstract

From the 1880s until after the creation of the Federal Reserve System in 1913 the United States was a hotbed of monetary controversy. The secular price deflation that began in 1865 prompted a host of efforts to increase the money supply, in the belief that more money would check the decline of prices. The agitation for free coinage of silver that arose in the 1870s and carried into the 1880s and 1890s generated a maelstrom of arguments and counterarguments. Such theoretical support as the “cheap money advocates” provided was in the form of a crude application of the quantity theory of money. Not surprisingly, using the quantity theory in such a manner brought the theory itself under fire.