Literary Review

In the article “Predicting Inflation: Does The Quantity Theory Help?”, the authors give their opinion from a quantity theory perspective, which is one of the most popular schools of thought. This article discusses studies in which mathematical forecasting methods were used. The authors believe that the supply of money in circulation is positively related to the price of goods and the inflation rate. This is the popular belief amongst economists today.

Another source that I found was “The Evolution of Money.” This article takes a harsh stance against the current US monetary policy and the creation of paper money. The author states “for money to have worth, it must be relatively scarce, which explains why today's dollar is so unstable.”(McManus). The author tries to state his opinion as a rule, but he fails to give any reference or support for his claim. This article makes some other unsubstantiated claims.It says that whatever is used as money must possess a tangible value. Gold is the best material to use as money. Silver and platinum could be used, but they are not as good as gold (McManus). It is unreasonable to assume that gold is any better than platinum as currency. Platinum is more scarce and more valuable than gold. According to the logic that is presented in this article, platinum should be a better material for currency than gold. There was one other quote that was ill used. Irving Fisher said “"The quantity theory of money thus rests, ultimately, upon the fundamental peculiarity which money alone of all human goods possesses - the fact that it has no power to satisfy human wants except a power to purchase things which do have such power". This quote was intended to support the quantity theory, but I see it as the opposite. If money can only be used to purchase goods that satisfy wants, then paper money is just as valuable as gold. These are just some examples of the way quantity theorists defend their position that gold is the only suitable backing for money. The quantity theory of money has been seen as the correct explanation for inflation for many years. It is believed that increasing the quantity of money will cause inflation even if the money is backed. Most of the articles that I read stated that the quantity theory, unemployment rate, or other factors were to blame for inflation. Most textbooks promote the quantity theory of money and do not even mention the real bills doctrine. The ones that do mention the RBD usually discredit it (Sproul). I found very few articles that promoted the real bills doctrine. It is a lesser known theory and is not widely accepted in the economics field.