AMERICAN QUANTITY THEORISTS PRIOR TO IRVING FISHER’STHE PURCHASING POWER OF MONEY

Abstract

The aim of this paper is to analyze the state of the quantity theory in the United States prior to the publication of Irving Fisher’s The Purchasing Power of Money in 1911. We start by presenting the participants in the monetary debate. Next, we analyze the controversies regarding prices, purchasing power of money, and credit, prior to the Gold Standard Act of 1900, in particular the opposing views of Francis Amasa Walker and James Laurence Laughlin. We then go on to study of the restatement of the quantity theory at the beginning of the twentieth century, through the introduction of credit in the analysis and the statistical tests of the exchange equations. Finally, we study the problems and management of the gold standard, focusing on the elasticity of money supply, the characteristics of the gold exchange standard, and the contrast between the fixed price of gold and its fluctuating purchasing power. We show the improvement of the quantity theory and the new issues that emerged from the rich and original American monetary debate, prior to the publication in 1911 of Fisher’s book.

Correa Moylan Walsh Beyond Index Numbers: From the “Battle of the Standards” to the Science of Money

“…This debate—the “battle of the standards,” as per Walsh (1903, p. 158)—was one of the most pressing issues during the golden age of monetary economics, which lasted from 1870 to 1914, according to David Laidler (1991, p. 1), and coincided with the US transition from the Gilded Age to the Progressive Era (see Hofstadter 1956; Leonard 2016). 6 In this period, monetary debates in the US concerned three main questions: the determination of the value of money and the demonetization of silver; the crises under the National Banking System and the need for a banking reform; and the choice of the metallic standard (De Boyer des Roches and Gomez Betancourt 2013, pp. 136–137).…”

“…3). In this process, Walsh turned his attention to monetary questions, a path many of his contemporaries followed as well (see De Boyer des Roches and Gomez Betancourt 2013). Within this new agenda, Walsh published The Measurement of General Exchange-Value , his magnum opus, already in 1901.…”

“…We argue, therefore, that Walsh’s work within monetary economics was not confined to index numbers but encompassed much deeper and broader concerns, as he was lured into economics by the most pressing monetary questions of his time—an argument that finds resonance in the one letter written by Walsh we managed to track down. This acknowledgment is hitherto undocumented in the history of economics, which bypasses Walsh’s name among the monetary economists of his time (see De Boyer des Roches and Gomez Betancourt 2013; Laidler 1991). In this lies the main contribution of this article.…”

“…3-4), the US suffered from a decline in prices from 1879 to 1897, after which prices rose.Walsh (1926, p. 130) identifies this decline of prices as ranging from 1873 to 1896-the same is true forDimand and Gomez Betancourt (2012, p. 186). For Walsh, the downward turn in prices is what triggered the "battle of the standards"(Walsh 1903, p. 158).8 For a more comprehensive discussion on the arguments presented by each side of the controversy, seeFriedman (1990a),Laidler (1991, chs, 2-3), and De Boyer desRoches and Gomez Betancourt (2013).…”

“… 8 For a more comprehensive discussion on the arguments presented by each side of the controversy, see Friedman (1990a), Laidler (1991, chs, 2–3), and De Boyer des Roches and Gomez Betancourt (2013). …”