What Is the Quantity Theory of Money?
The concept of the quantity theory of money (QTM) began in the 16th century. As gold and silver inflows from the Americas into Europe were being minted into coins, there was a resulting rise in inflation. This led economist Henry Thornton in 1802 to assume that more money equals more inflation and that an increase in money supply does not necessarily mean an increase in economic output. Here we look at the assumptions and calculations underlying the QTM, as well as its relationship to monetarism and ways the theory has been challenged.
QTM in a Nutshell
The quantity theory of money states that there is a direct relationship between the quantity of money in an economy and the level of prices of goods and services sold. According to QTM, if the amount of money in an economy doubles, price levels also double, causing inflation (the percentage rate at which the level of prices is rising in an economy). The consumer therefore pays twice as much for the same amount of the good or service.
Another way to understand this theory is to recognize that money is like any other commodity: increases in its supply decrease marginal value (the buying capacity of one unit of currency). So an increase in money supply causes prices to rise (inflation) as they compensate for the decrease in money’s marginal value.
The Theory’s Calculations
In its simplest form, the theory is expressed as:
MV = PT (the Fisher Equation)
Each variable denotes the following: M = Money Supply V = Velocity of Circulation (the number of times money changes hands) P = Average Price Level T = Volume of Transactions of Goods and Services
The original theory was considered orthodox among 17th century classical economists and was overhauled by 20th-century economists Irving Fisher, who formulated the above equation, and Milton Friedman.
It is built on the principle of “equation of exchange”:
Amount of Money x Velocity of Circulation = Total Spending
Thus if an economy has US$3, and those $3 were spent five times in a month, total spending for the month would be $15.
QTM Assumptions
QTM adds assumptions to the logic of the equation of exchange. In its most basic form, the theory assumes that V (velocity of circulation) and T (volume of transactions) are constant in the short term. These assumptions, however, have been criticized, particularly the assumption that V is constant. The arguments point out that the velocity of circulation depends on consumer and business spending impulses, which cannot be constant.
|
|
|
The theory also assumes that the quantity of money, which is determined by outside forces, is the main influence of economic activity in a society. A change in money supply results in changes in price levels and/or a change in supply of goods and services. It is primarily these changes in money stock that cause a change in spending. And the velocity of circulation depends not on the amount of money available or on the current price level but on changes in price levels.
Finally, the number of transactions (T) is determined by labor, capital, natural resources (i.e. the factors of production), knowledge and organization. The theory assumes an economy in equilibrium and at full employment.
Essentially, the theory’s assumptions imply that the value of money is determined by the amount of money available in an economy. An increase in money supply results in a decrease in the value of money because an increase in money supply causes a rise in inflation. As inflation rises, the purchasing power, or the value of money, decreases. It therefore will cost more to buy the same quantity of goods or services.
Money Supply, Inflation and Monetarism
As QTM says that quantity of money determines the value of money, it forms the cornerstone of monetarism.
Monetarists say that a rapid increase in money supply leads to a rapid increase in inflation. Money growth that surpasses the growth of economic output results in inflation as there is too much money behind too little production of goods and services. In order to curb inflation, money growth must fall below growth in economic output.
This premise leads to how monetary policy is administered. Monetarists believe that money supply should be kept within an acceptable bandwidth so that levels of inflation can be controlled. Thus, for the near term, most monetarists agree that an increase in money supply can offer a quick-fix boost to a staggering economy in need of increased production. In the long term, however, the effects of monetary policy are still blurry.
Less orthodox monetarists, on the other hand, hold that an expanded money supply will not have any effect on real economic activity (production, employment levels, spending and so forth). But for most monetarists any anti-inflationary policy will stem from the basic concept that there should be a gradual reduction in the money supply. Monetarists believe that instead of governments continually adjusting economic policies (i.e. government spending and taxes), it is better to let non-inflationary policies (i.e. gradual reduction of money supply) lead an economy to full employment.
|
|
|
QTM Re-Experienced
John Maynard Keynes challenged the theory in the 1930s, saying that increases in money supply lead to a decrease in the velocity of circulation and that real income, the flow of money to the factors of production, increased. Therefore, velocity could change in response to changes in money supply. It was conceded by many economists after him that Keynes’ idea was accurate.
QTM, as it is rooted in monetarism, was very popular in the 1980s among some major economies such as the United States and Great Britain under Ronald Reagan and Margaret Thatcher respectively. At the time, leaders tried to apply the principles of the theory to economies where money growth targets were set. However, as time went on, many accepted that strict adherence to a controlled money supply was not necessarily the cure-all for economic malaise.
“Going to the dogs”
We have an expression in English “going to the dogs”. If something is “going to the dogs”, it means that everything seems to be getting worse and worse. There is a special sort of English person – perhaps you have met one – who will tell you that England is going to the dogs. He means that he doesn’t like the sort of clothes that young people wear, that he doesn’t like computers, that he doesn’t understand what an iPhone app does, that there are too many foreigners, that the Australians have just beaten England at cricket and that beer doesn’t taste like proper beer any more. It wasn’t like this when he was young. The country is going to the dogs!
We are going to the dogs today. We are going to visit Crufts, which is the largest dog show in the world. Every year, about 28,000 dogs and their owners come to a big exhibition centre near Birmingham for a four day celebration of dogs and everything connected with dogs. They (the dogs, that is) compete in lots of tests and competitions, to see which is the best dog in each breed, and which is the best dog in the whole show.
|
|
|
The best dog in the show wins a prize of £100, which does not sound much to people like you and me, but perhaps it is a lot of money if you are a dog. Also at Crufts there are races for dogs, obedience competitions for dogs and something called “heelwork to music”, which essentially means people dancing with their dogs.
Dogs that go to Crufts are special dogs. They are all pedigree dogs, which means that each dog comes from a pure breed and that there is a proper record of its ancestors. Some are working dogs, which have been bred for hunting or for working on farms. Others are just pretty dogs. There are big dogs and little dogs, noisy dogs and quiet dogs, dogs from Britain and dogs from other countries too.
Why is this dog show called Crufts? It is named after a Mr Cruft, who worked for a company that made dog biscuits. In 1886, he organised a dog show in London. Six hundred dogs took part. Since then, the dog show which he started has grown and grown. In 1991, it became so big that it had to move out of London to a huge exhibition centre in the middle of England.
A few years ago there was a lot of controversy about Crufts. Some people claimed that many of the dogs at Crufts were deformed and unhealthy. They said that dog breeders wanted dogs with exaggerated characteristics – very narrow heads, for examples, or short noses or long back legs. As a result many pedigree dogs were unable to breathe properly, or to stand properly or see properly. Many had severe heart, brain or lung illnesses. There was an outcry when a TV programme about pedigree dog breeding was shown on TV in 2008. The BBC decided that it would no longer send its cameras to make programmes about Crufts.
The organisation for dog breeders in Britain is called the Kennel Club. (A “kennel” is a little hut or building where dogs are kept). In the past few years, the Kennel Club has tried to improve the health of pedigree dogs. They have changed many of the rules and standards. Today, vets examine dogs at Crufts to make sure that they are healthy animals, and disqualify them if they are not. Some of the old school dog breeders don’t like this (they probably say that the country is going to the dogs!), but the public is opposed to cruelty to animals, and most people agree that the new rules are right.
|
|
|
Now lets meet our special guest on Listen to English. Her name is Elizabeth, and she has won the coveted Best in Show award at Crufts, beating all the other 28,000 dogs which took part. This means that she is, for 2012 at least, the Best Dog in the World! What sort of dog is she? Elizabeth is a Lhasa Apso. Lhasa Apso dogs come from Tibet. They are used as guard dogs in monasteries, to warn the monks if strangers appear. There is a photo of Elizabeth on the website. You will see that when she is not guarding monasteries she spends a lot of time at the hairdressers. We sometimes say that dogs look like their owners. So what do you think that Elizabeth’s owner look like? Does she have hair all over her eyes as well? Or perhaps she wears a wig?
I have often told you that we English are mad. Now you know that it is true. Woof woof.
Катиться к чертям собачьим
У нас есть выражение на английском “going to the dogs”. Если что-то “катится к чертям собачим”, это означает, что все становится все хуже и хуже. Есть особый сорт англичан – возможно, вы встречали их представителя – который скажет вам, что Англия катится к чертям собачьим. Он имеет в виду, что ему не нравится одежда, которую носят молодые люди, что ему не нравятся компьютеры, что он не понимает, что делает приложение для iPhone, что слишком много иностранцев, что австралийцы только что обыграли Англию в крикет, и что пиво больше не похоже на настоящее пиво. Все было не так, когда он был молод. Страна катится к чертям собачьим!
Сегодня мы идем к собакам. Мы посетим крупнейшую в мире выставку собак Crufts. Каждый год около 28 000 собак и их владельцев приезжают в большой выставочный центр недалеко от Бирмингема на четырехдневный праздник собак и всего, что связано с собаками. Они (собаки, то есть) соревнуются во множестве тестов и соревнований, чтобы увидеть, какая собака лучшая в каждой породе, а какая собака лучшая во всей выставке.
Лучшая собака в шоу выигрывает приз в размере 100 фунтов стерлингов, что не так много для таких людей, как вы и я, но, возможно, это много денег, если вы собака. Кроме того, на Crufts есть гонки для собак, соревнования на послушание для собак и что-то под названием “heelwork to music”, что по существу означает, что люди танцуют со своими собаками.
Собаки, которые ходят на Crufts — это особенные собаки. Все они являются породистыми собаками, что означает, что каждая собака происходит из чистой породы и что есть надлежащая запись о ее предках. Некоторые собаки — рабочие, они были выведены для охоты или для работы на фермах. Другие просто красивые собаки. Есть большие собаки и маленькие собаки, шумные собаки и тихие собаки, собаки из Великобритании и собаки из других стран.
Почему эта выставка называется Crufts? Она названа в честь мистера Крафта, который работал на компанию, которая делала печенье для собак. В 1886 году он организовал выставку в Лондоне. В ней приняли участие шестьсот собак. С тех пор выставка собак, которую он начал, росла и росла. В 1991 году, она стала такой большой, что пришлось переехать из Лондона в огромный выставочный центр в центре Англии.
Несколько лет назад было много споров о Crufts. Некоторые люди утверждали, что многие собаки в Crufts были изуродованы и нездоровы. Они сказали, что собаководы хотят получить собак с преувеличенными характеристиками – очень узкими головами, короткими носами или длинными задними ногами. В результате многие породистые собаки не могли нормально дышать, стоять или видеть. У многих были тяжелые заболевания сердца, мозга или легких. Случился резонанс, когда в 2008 году по телевизору показали телепрограмму о племенном собаководстве. Би-би-си решили, что больше не будут снимать программы о Crufts.
Организация собаководов в Великобритании называется клуб вольеров. ("Вольер” — это маленькая хижина или здание, где содержатся собаки). В последние несколько лет клуб вольеров старается улучшить здоровье породистых собак. Они изменили многие правила и стандарты. Сегодня ветеринары осматривают собак в Crufts, чтобы убедиться, что они здоровые животные, и дисквалифицировать их, если это не так. Некоторым из собаководов старой школы это не нравится (они, вероятно, говорят, что страна катится к чертям собачьим!), но общественность выступает против жестокости к животным, и большинство людей согласны с тем, что новые правила верны.
Теперь давайте встретимся с нашим специальным гостем на Listen to English. Ее зовут Элизабет, и она выиграла желанную награду Best in Show Award в Crufts, победив всех остальных 28 000 собак, которые приняли участие. Это означает, что она, по крайней мере, на 2012 год, лучшая собака в мире! Что она за собака такая? Элизабет — Лхаса апсо. Собаки лхаса апсо родом из Тибета. Они используются в качестве сторожевых собак в монастырях, чтобы предупредить монахов, если появляются незнакомцы. На сайте есть фотография Элизабет. Вы увидите, что, когда она не охраняет монастыри, она проводит много времени в парикмахерских. Мы иногда говорим, что собаки похожи на своих хозяев. Как ты думаешь, как выглядит владелец Элизабет? У нее тоже волосы по всему лицу? Или, возможно, она носит парик?
Я часто говорил вам, что мы, англичане, сумасшедшие. Теперь вы знаете, что это правда. Гав гав.
Дата добавления: 2019-09-08; просмотров: 351; Мы поможем в написании вашей работы! |
Мы поможем в написании ваших работ!