The Quantity Theory of Money: A New Restatement

Tim Congdon

• Publisher: Institute of Economic Affairs
• Year: 2024
• Print ISBN: 9780255368421
• eBook ISBN: 9780255368445
• Topic: Economics
• Subtopic: Banks & Banking
• Index: Economics

As Covid-19 hit the world's leading economies, most economists – in central banks and elsewhere – expected years of disinflation or even falling prices. To counter the supposed risks, policy-makers embarked on expansionary measures which caused money growth to reach remarkably high rates in spring and summer of 2020. In the event inflation soared in the next few quarters. In 2022 it reached the highest levels for 40 years in the USA, Europe, the UK and elsewhere. In this bold new book Congdon laments the widespread forecasting failure. From the very start – in late March 2020 – he warned both that rapid money growth was to be expected and that it would lead to a serious inflation flare-up. In rigorous but accessible language, Congdon explains the continuing analytical power of the quantity theory of money. As with other inflation episodes in the past, the inflation of the early 2020s demonstrated the force of Milton Friedman's dictum that 'inflation is always and everywhere a monetary phenomenon'.

Table of contents

• About the author
• Preface
• Acknowledgements
• Summary
• Introduction
• 1 Setting the scene
• 2 The Fisher equation: rights and wrongs
• 3 How is money created?
• 4 The monetary theory of national income and wealth
• 5 The transmission mechanism: direct effects in ‘the goods market’
• 6 The transmission mechanism: indirect effects via asset markets
• 7 Some evidence for the quantity theory of money
• 8 Applying the theory to the US in the early 2020s
• 9 Applying the theory to the UK in the early 2020s
• 10 How this restatement differs from Friedman’s
• 11 Conclusion: the quantity theory’s continuing relevance and analytical power
• Appendix to Chapter 8
• References
• About the IEA