According to the quantity theory of money, if the amount of money in an economy doubles, price levels will also double. Unrealistic assuptions 8. at the Cambridge University formulated the Cambridge cash-balance approach. Back. the reasoning differs. Fisher's Last Stand on the Quantity Theory: the Role of Money in the Recovery.Journal of the History of Economic Thought, Vol. Steindl, Frank G. 2000. And with the quantity of money increasing by four-fold to M 4, the value of money is reduced by 1/P 4. The modern quantity theory is in fact very much a development of the Cambridge cash balance formulation of the quantity theory. Quantity Theory of Money: Cambridge Version An alternative version, known as cash balance version, was developed by a group of Cam­bridge economists like Pigou, Marshall, Robertson and Keynes in the early 1900s. For all these reasons, modern QTM is very much in the tradition of the Cambridge QTM (at least in its empirical applications), with, of course, several qualifications. Thus, they hold a very narrow view of the concept. 04, p. 493. This means that the … ADVERTISEMENTS: The cash balances approach to the quantity theory of money has been criticized on the following counts: 1. Just as in that formulation the modern quantity theory is concerned with the determination of the money national income incorporating prices and output. The two approaches have the following similarities: 1. Weak theory 6. This inverse relationship between the quantity of money and the value of money is shown by downward sloping curve 1/P = f (M). Journal of Post Keynesian Economics: Vol. Neglects store of value function of the money 9. 22, Issue. The “Cambridge” critique of the quantity theory of money: A note on how quantitative easing vindicates it. (2017). 260-271. 2. 2, pp. A simi­lar interpretation of the transactions approach to the Quantity Theory of Money (QTM) is not avail­able. Same Conclusion: The Fisherian and Cambridge versions lead to the same conclusion that there is a direct and proportional relationship between the quantity of money and the price level and an inverse proportionate relationship between the quantity of money and the value of money. Narrow View: A notable defect peculiar to the equations given by Pigou and Keynes is that they deal with the purchasing power of money in terms of consumption goods only. But with the doubling of the quantity of money to M 2, the value of money becomes one-half of what it was before, 1/P 2. As an alternative to Fisher’s quantity theory of money, Marshall, Pigou, Robertson, Keynes, etc. An alteration on this point was brought in by several Cambridge economists in the earlier part of this century. The Cambridge equation formally represents the Cambridge cash-balance theory, an alternative approach to the classical quantity theory of money.Both quantity theories, Cambridge and classical, attempt to express a relationship among the amount of goods produced, the price level, amounts of money, and how money moves.The Cambridge equation focuses on money demand instead of money … Static theory 6. Simon Newcomb's and Irving Fisher's Quantity Theory, as we noted, relies entirely on the idea of a stable transactions demand for money.This requires that money is desired only for its medium of exchange function and this is institutionally imposed. 40, No. Reviewing the Cambridge equations as a whole, we may find the following short-comings in the approach: 1. Neglects the interest rate 7. Fails to measure value of money 5. Truisms: Like the transactions equation, the cash balances equations are truisms. 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