Cambridge Approach
Further information: Cambridge equationEconomists Alfred Marshall, A.C. Pigou, and John Maynard Keynes (before he developed his own, eponymous school of thought) associated with Cambridge University, took a slightly different approach to the quantity theory, focusing on money demand instead of money supply. They argued that a certain portion of the money supply will not be used for transactions; instead, it will be held for the convenience and security of having cash on hand. This portion of cash is commonly represented as k, a portion of nominal income . The Cambridge economists also thought wealth would play a role, but wealth is often omitted for simplicity. The Cambridge equation is thus:
Assuming that the economy is at equilibrium, is exogenous, and k is fixed in the short run, the Cambridge equation is equivalent to the equation of exchange with velocity equal to the inverse of k:
The Cambridge version of the quantity theory led to both Keynes's attack on the quantity theory and the Monetarist revival of the theory.
Read more about this topic: Quantity Theory Of Money
Famous quotes containing the words cambridge and/or approach:
“the Cambridge ladies who live in furnished souls
are unbeautiful and have comfortable minds”
—E.E. (Edward Estlin)
“Fishermen, hunters, woodchoppers, and others, spending their lives in the fields and woods, in a peculiar sense a part of Nature themselves, are often in a more favorable mood for observing her, in the intervals of their pursuits, than philosophers or poets even, who approach her with expectation. She is not afraid to exhibit herself to them.”
—Henry David Thoreau (1817–1862)