Photo by Charles Deluvio on UnsplashThe so-called quantity equation is an essential foundation of the prevailing economic doctrine. A highly questionable one!The ideas of a circulating money supply and a connection between this money supply and the level of the price level result from an idea in which all money consists of a clearly defined amount of cash, e.g., in the form of a certain and limited number of gold and silver coins. But this has nothing to do with reality, let alone today\u2019s realities. Nevertheless, many economists obviously still believe this fairy tale to be a reality. The purpose of this nonsense is to make people believe that monetary policy does not influence the economy, growth, and employment but that the \u201cmoney supply\u201d is merely controlled to ensure price stability.The basis of this hoax is the so-called quantity theory of money or the quantity equation of Irving Fisher (M x V = P x Y) with M = money supply, V = velocity of circulation of money per year, Y = real gross national product of an economy, P = price level. The expression (Y * P) denotes the value of the social product produced and sold (quantity of goods produced and sold, valued at prices), M x V the quantity of money \u201cin circulation.\u201dThe quantity equation’s essential statement is then \u2014 under the assumption that V and Y (output at full employment!) is constant or given. The prices double if one doubles the money supply. Otherwise, however, nothing changes (neutrality of money). Real economic variables, such as economic activity, growth, and employment, would remain unaffected.In reality, however, there is a problem: In reality, the quantity of money in circulation (flow) cannot be determined at all. All that is known is the stock of money at a given point\u2026<\/p>","protected":false},"excerpt":{"rendered":"
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