The Elgar Companion to John Maynard Keynes
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The Elgar Companion to John Maynard Keynes

Edited by Robert W. Dimand and Harald Hagemann

The most influential and controversial economist of the twentieth century, John Maynard Keynes was the leading founder of modern macroeconomics, and was also an important historical figure as a critic of the Versailles Peace Treaty after World War I and an architect of the Bretton Woods international monetary system after World War II. This comprehensive Companion elucidates his contributions, his significance, his historical context and his continuing legacy.
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Chapter 32: The quantity theory of money

Arash Molavi Vasséi


This study informs about the complex and time-varying relationship between John Maynard Keynes and the Cambridge approach to the quantity theory of money. Since it shows Keynes as a quantity theorist, the most comprehensive discussions are devoted to his Tract on Monetary Reform, the first milestone in Keynes’s oeuvre as a monetary economist, published in 1923. I introduce Keynes’s exposition of the quantity theory, extended to include a fractional reserve system of commercial banking, and how he used it as an engine of short-run monetary analysis. Subsequently, I account for Keynes’s first escape from what he called the “law of unit elasticity” in his path-breaking study of the dynamics of hyperinflation. Then, it is shown how Keynes’s liquidity preference theory initiated the demise of one-equation macroeconomics in favour of general equilibrium models.

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