This chapter uses the classical money model introduced in Chapter 2 to explain the different views of Adam Smith and David Hume on banking and the price-specie-flow mechanism (PSFM). These differences reappeared in the debates between the Banking School and the Currency School over Peel's Bank...

Monetary-policy rules arise when the value of a medium of exchange exceeds its cost of production. Two classes of monetary rules can be identified: (1) price rules that target the value of money in terms of a real commodity, e.g., gold, or in terms of an index of prices, and (2) quantity rules...

This chapter examines the development of Keynes's monetary thought in the context of Britain's return to the gold standard (opposed by Keynes) in 1925 and his unsuccessful attempt to develop a theory of macroeconomic fluctuations in his Treatise on Money. Keynes, who had predicted that rejoining...

The first monetary theory of the Great Depression is often credited to Milton Friedman. Advanced to counter the idea that the Great Depression resulted from inherent capitalistic instabilities, Friedman's theory attributed the Depression to policy mistakes by an inept Federal Reserve Board. More...

R. G. Hawtrey, like J. M. Keynes, was a Cambridge graduate in mathematics, an Apostle, influenced by the Cambridge philosopher G. E. Moore, and connected to the Bloomsbury Group. Though eventually overshadowed by Keynes, Hawtrey, after publishing Currency and Credit in 1919, was in the front...

Hayek's early writings on business-cycle theory and the Great Depression argued that cyclical downturns, including that of 1929-1931 were caused by unsustainable elongations of the capital structure caused by bank-financed investment exceeding voluntary saving. Believing that monetary expansion...

This chapter compares alternative explanations of the Great Depression: the Monetarist explanation of (Friedman and Schwartz,.A Monetary History of the United States, 1867-1960, Princeton University Press, 1963), the Austrian explanation of Hayek and (Robbins,.The Great Depression, Macmillan,...