money, quantity theory of

money, quantity theory of

Economic theory relating changes in the price level to changes in the quantity of money. It has often been used to analyze the factors underlying inflation and deflation. The quantity theory was developed in the 17th and 18th centuries by philosophers such as John Locke and David Hume and was intended as a weapon against mercantilism. Drawing a distinction between money and wealth, advocates of the quantity theory argued that if the accumulation of money by a nation merely raised prices, the mercantilist emphasis on a favourable balance of trade would only increase the supply of money without increasing wealth. The theory contributed to the ascendancy of free trade over protectionism. In the 19th–20th centuries it played a part in the analysis of business cycles and in the theory of rates of foreign exchange.

This entry comes from Encyclopædia Britannica Concise.
For the full entry on money, quantity theory of, visit

Seen & Heard

What made you look up money, quantity theory of? Please tell us what you were reading, watching or discussing that led you here.

Get Our Free Apps
Voice Search, Favorites,
Word of the Day, and More
Join Us on FB & Twitter
Get the Word of the Day and More