By Jeffrey M. Herbener Although 1870 saw a breakthrough in price theory, the advances of the marginalist revolution had not yet penetrated to monetary theory by the early decades of the 20th century. Most economists were still content to work with the centuries-old quantity theory of money even though it took an aggregated approach while the key insight of the new price theory was the link between a good's price and the valuation of it made by individual consumers.
Benjamin Anderson was among a handful of economists, led by Ludwig von Mises in his pioneering work The Theory of Money and Credit in 1912, who set out to integrate monetary theory into a general theory of value.
Like Mises, Anderson devoted a major portion of his The Value of Money, published in 1917, to a refutation of the "mechanical" quantity theory of money. Many of Anderson's arguments will be familiar to any student of Mises: the causes and effects from which the data of the quantity equation are constructed are disaggregated and complex; whatever the correlation between the aggregate variables of the quantity equation, correlation is not causation; causation cannot be established in the equation because there are no quantitative constants in human action (in particular, velocity is not constant); the quantity theory ignores time; there is no unambiguous way to define the variables in the theory: the money stock, velocity, the quantity of goods, and the price level.
Additionally, Anderson holds that whatever true propositions the quantity theory offers can as well be deduced from a correct theory of value and that many true theories of modern economics… (Read on)
Source: Mises.org
