Quantitative theory of money
Irving Fisher was an American economist. He was born on February 27, 1867 in Saugerties and died on April 29, 1947 in New York. During his life, he spread neoclassical economic thoughts in the United States, he was also a statistician, eugenicist, and inventor. In this article we will provide you the information about the Quantitative theory of money.
Quantitative Theory of Money
Among the main basic contributions of the Quantitative Theory of Money, the following stand out:
- The price level will depend on the amount of money available.
- An increase in the money supply is transported in the same way to the price level.
The equation of the Quantitative Theory of Money was expressed by P x Q = M x V.
- P refers to the price level.
- M to the amount of money in circulation.
- Q at the production level.
- V to the movement of money, to the number of times it changes hands.
Therefore, this is the speed at which money circulates, if the money supply increases and production decreases, the result will be an increase in prices.
Contributions of Irving Fisher
- He structured mechanical models to demonstrate how economic and financial circulation develops.
- He used indifference curves as his method of analysis.
- He made the Austrian School known in the Anglo-Saxon world.
- He argued the need to maintain a bank cash ratio of 100% to avoid financial crises.
- One of his most important works in statistics is his book on index numbers, today it is better known as The Fisher index.
- He defended the Quantitative Theory of Money.
- He was a very versatile writer, published on issues of politics, economics, mathematics, diet and public health, tuberculosis.
- He was also a eugenicist presidential advisor.
Fisher’s theorem
As for Fisher’s Theorem, this is based on the rate of return, it indicates that it is equal to the present value with all costs and with all income, this projects the equivalence to the internal rate of return.
It refers to the objective of the entrepreneur in maximizing his rate of return on costs to achieve the increase in his investment.
Examples of Irving Fisher
- Irving Fisher provided very current formulas for his time, was the inventor of economic indices, and paved the way for econometrics.
- Newcomb formulated one of the adaptations of the quantity theory disclosed by Fisher, based on the thought of transactions.
- Fisher used the financial mathematics equation to evaluate the corresponding between real and nominal interest rates, taking inflation into account.
