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p. 553. The monetary reformerlocked

  • Robert Skidelsky


Keynes believed that fluctuations in business activity could be prevented by appropriate monetary policy. ‘The monetary reformer’ examines Keynes's theories on monetary policy. The quantity theorists of his day wanted to use the theory of money to stabilize economic activity. This quantity theory of money was an early version of short-run macroeconomic stabilization. Economists of the 1920s tried to use the quantity theory of money to explain fluctuations in output. The power of money to Keynes arose from its function as a store of value rather than as a means of exchange. Inventing theoretical models ‘relevant’ to the real world implied a development of policy instruments appropriate to a wide variety of realistic circumstances.

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