The Rise and Fall of the Quantity Theory in Nineteenth Century Britain: Implications for Early Fed Thinking

40 Pages Posted: 12 Feb 2018 Last revised: 29 Apr 2020

See all articles by Robert L. Hetzel

Robert L. Hetzel

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: 2016

Abstract

British monetary experience in the nineteenth century was extremely rich both in terms of the development of the quantity theory and in terms of the evolution of views of the role of the Bank of England in the international gold standard. One can ask, should or could the early Federal Reserve have learned from this experience? Especially during the Depression, why didn't the Federal Reserve understand its responsibility for the monetary contraction, deflation, and economic collapse it produced? Why didn't knowledge of the quantity theory, which developed in early nineteenth century Britain, prevent such a catastrophic mistake? A short answer is that the quantity theory, which flourished in the first part of the nineteenth century, disappeared as the gold standard became orthodoxy and the counterfactual of a paper money standard became heresy. There was then very little to guide the early Fed when it created a monetary standard that in reality was a paper money standard.

Keywords: quantity theory, gold standard, monetary standard

Suggested Citation

Hetzel, Robert L., The Rise and Fall of the Quantity Theory in Nineteenth Century Britain: Implications for Early Fed Thinking (2016). Economic Quarterly, Issue Q4, pp. 281-320, 2016, Available at SSRN: https://ssrn.com/abstract=3121585

Robert L. Hetzel (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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