What Is the Quantity Theory of Money?

The quantity theory of money is a currency theory that uses the change in the quantity of money in circulation to explain the change in the price of a commodity. Before Ricardo, Hume was considered a representative of this theory. Ricardo has always adhered to the theory of labor value and applied this principle to currency. He said: "The amount of such reduced color silver coins exceeds the number of silver coins that can be maintained in the circulation process using only uncolored silver coins, so it It depreciates and diminishes .... The devaluation of the currency depends entirely on whether it is in excess, not on whether it is a subsidiary or a main currency. "

Quantity theory of money

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The Coinage of 1873

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In modern Western quantitative theory of money, in addition to focusing on the qualitative identification of the relationship between currency circulation and commodity prices and monetary value, it also focuses on the quantitative analysis of their relationship. Its main representatives are: D. Hume of the United Kingdom (1711 ~ 1776), I. Fisher of the United States, A. Marshall of the United Kingdom, AC Pigou and JM

Modern monetary quantity theory holds that monetary quantity theory is not about output,

There are well-known economists in the economic development of all developing countries

The issue of economic development is a theoretical and practical issue that every developing country, including China, is urgently needed to resolve. During the transition to a modern market economy, the problems of economic development in developing countries are reflected in the monetization of the economy. Therefore, it has become a prominent and important issue for each developing country to seek a currency theory suitable for its own situation to guide its economic development. Since the modern market economy is essentially a currency economy, there are many schools of currency theory in modern economics. It can be said that every economics master has his own concept of currency. In this genre of monetary theories, the most influential is the monetary theory of modern monetary quantity created by Milton Friedman, the Nobel Prize winner in economics.

Here, through the theoretical analysis of the modern monetary quantity theory and the realistic investigation of developing countries, mainly China, it is proposed that developing countries should not copy the modern monetary quantity theory. The modern monetary quantity theory is not a "compass" but a "reference object". All developing countries should make theoretical and institutional innovations in light of their own circumstances. Reform is an important motivation for developing countries to promote economic development. Friedman's theory of money demand emphasizes the wealth limitation of money demand, and some of his views have a certain effect on the correct analysis of China's current economic situation. Most consumers in China belong to the low- and middle-income class. Most consumers expect their permanent income to decrease or grow slowly. As a result, low-income people will reduce their holdings of money and save money in the form of savings, which will reduce the substitution rate of goods and currencies. As a result, the stock of goods continues to increase, on the other hand, people are unable to consume or reduce consumption. The central bank's several interest rate cuts have little impact on people's money demand, and the continuous increase in savings deposits illustrates this problem.