Edited by Robert W. Dimand and Harald Hagemann
Chapter 22: A Tract on Monetary Reform
Keynes’s Tract on Monetary Reform, based on his contributions to a series of Manchester Guardian Commercial supplements on reconstruction in Europe which he edited, was a major work in the Marshallian tradition of the Cambridge cash balances approach to the quantity theory of money. As such, it won the admiration of Milton Friedman and Thomas Sargent, who criticized Keynes’s later macroeconomics. In the context of post-World War I hyperinflations in Germany, Russia and Central and Eastern Europe and of deflation in Czechoslovakia and elsewhere, Keynes’s Tract analysed the social costs of inflation and deflation, and introduced cover interest arbitrage parity (spot and forward foreign exchange rates differ by the spread between nominal interest rates in the two currencies).
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