Can There Be a Theory of Money?

Abstract

The possibility of obtaining a "theory" of money is questioned, where a theory is taken to mean an explanatory framework using a small number of observables. The root of the problem lies in the maximizing nature of economic agents. Money is means to effect transactions and savings; what will be used as money depends upon such a miscellany of factors that no "theory" can be expected to emerge. A critical examination of the Quantity Theory, both as a theory and as a testable proposition, supports this claim.

Keywords: Monetary Theory, Quantity Theory, Monetarism, Irving Fisher, Milton Friedman

JEL Classification: B0, E0, E5