Theory and Policy

It has been my intention in this work to trace the development of the classical (and Marxian) analysis of money and prices as an integral part of the ‘surplus’ approach to value and distribution in the market economy. Although the conventional interpretation suggests that this analysis implies a quantity theory of money, I have attempted to show that, in contrast with neoclassical analysis, the classical account of inflation treats the price level as an independent variable in the equation of exchange. It is only in the short run that quantity theory can have any relevance to classical economics; and this, I have argued, is due to its treatment not just of money and prices but also of output.