The Evolution of the Sophisticated Quantity Theory: Marshall vs.Wicksell on Transaction Demand

Michael J. Gootzeit

American Journal of Economics and Sociology, 2001, vol. 60, issue 4, 775-793

Abstract: When the money supply increased exogenously, Marshall’s vs. Wicksell’s versions of short run inflation transmission are shown to be different because of their ideas on money demand. During the approach to monetary equilibrium, the implication was that the demand for transactions cash balances would have to increase in order for inflation to stop. Marshall focused on the real, while Wicksell focused on the nominal, demand for such balances; Marshall assumed velocity of money was constant, while Wicksell assumed it to be pro‐cyclic. These assumptions about money demand caused them to make different predictions on how much prices would eventually rise: Marshall described a price‐undershoot, while Wicksell described a price‐overshoot mechanism.

Date: 2001
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