David Hume and Irving Fisher on the quantity theory of money in the long run and the short run

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Abstract:

David Hume's classic statement of the quantity theory of money and the specie-flow mechanism of international adjustment in 1752 and Irving Fisher's authoritative restatement of the quantity theory in 1911 shared a concern with simultaneously upholding both the long-run neutrality and the short-run non-neutrality of money. This paper compares their approaches to attempting this reconciliation of the long run and short run, noting their shared emphasis on ‘illusion’ as the basis of short-run non-neutrality, and places their contributions in historical context. I argue that Hume and Fisher shared the same view of how automatic adjustment of the balance of payments worked under the gold standard, with Fisher's monetary reform proposals being an attempt to prevent the working of Hume's automatic adjustment mechanism.

Keywords: B13; B22; David Hume; Irving Fisher; also B12; long-run neutrality; quantity theory of money; short-run non-neutrality JEL classifications: B31 history of economic thought: individuals

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/09672567.2012.758760

Affiliations: Department of Economics, Brock University, St. Catharines Ontario, L2S 3A1, Canada +1 905 688 5550 ext 3125 +1 905 688 5550 ext 3125

Publication date: April 1, 2013

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