The Golden Age of the Quantity Theory.

As David Laidler points out, the period 1870 to 1914 was a golden age in more than one sense, for it was during that time that the Gold Standard became a remarkably stable international monetary system and the quantity theory reached its peak. The conjunction of these events suggests one of those vexing questions, namely, did the institution influence the ideas, or did the ideas influence the institution? Laidler leans to the latter alternative, for the two major themes of his book are that "the evolution of monetary economics owed more to its own internal dynamics than to outside events, and that the logic of the quantity theory subverted the intellectual authority of the Gold Standard". The themes are clearly and convincingly developed.

Laidler begins The Golden Age with an overview, followed by a careful presentation of the state of orthodox classical monetary theory during the 1870s (Chapter 2). Here he seeks to establish a background upon which later, predominantly neoclassical, developments, might be viewed; the names of John Stuart Mill, William Stanley Jevons, and Walter Bagehot figure prominently. That being done, he turns to the neoclassical theories of the price level (Chapter 3), with primary emphasis being given to the approaches of Alfred Marshall and the Cambridge School, and Irving Fisher; the contributions of Arthur Cecil Pigou are shown to have been important and are spoken of quite favorably.

Chapter 4 of The Golden Age examines neoclassical cycle theory, particularly in its monetary aspect. Here, Alfred Marshall, and now Mary Paley Marshall, play a role, as do Fisher, Pigou, and Ralph Hawtrey. All of these writers are shown to have analyzed interactions of interest rates and price levels, with the Marshalls, Pigou, and Hawtrey treating such real variables as output and employment, and the Marshalls regarding money wage stickiness as a fact. Among these writers Fisher and Hawtrey were the ones who adhered most closely to a monetary theory of the cycle.

Knut Wicksell, generally a defender of the quantity theory, is given special treatment in Chapter 5 because, paradoxically, his work is seen as having led to its being discredited. This was due in part to his emphasis on real factors as a source of cyclical fluctuations, and in part to his conceptualization of how the banking system worked. In relation to this, Laidler suggests that Wicksell influenced the monetary views of Richard Kahn, as embodied in the 1959 Report of the Radcliffe Committee, and thus helped form "Keynesian" monetary theory!

Laidler continues with a discussion of the relations between neoclassical monetary theory and related monetary institutions (Chapter 6). Here events and ideas are seen in juxtaposition, gold monometallism, bimetallism, indexation, managed money, and central banking making an appearance, along with some additional writers, most notably Leon Walras and Francis Ysidro Edgeworth; Edgeworth and his 1888 article "The Mathematical Theory of Banking" are singled out for special attention.

The Golden Age is brought to an end in chapter 7 where Laidler presents some conclusions on the relations between neoclassical and Keynesian economics. The general thrust of his argument is that "Keynesian theory evolved from, rather than overthrew, neoclassical monetary theory" and that the "Keynesian attitude to policy" likewise evolved from earlier doctrine. The careful work of Laidler, then, reveals what is often true: the discernment of an intellectual revolution is an admission of ignorance. He is to be thanked for making our ignorance a little less profound.

In The Golden Age David Laidler has made a valuable contribution to our understanding of the content of neoclassical monetary theory, its development during 1870-1914, and its relation to Keynesian thought. At the same time he has examined its development in relation to contemporary economic institutions. His work, therefore, should appeal to a wide spectrum of readers and can be recommended without qualification.

Bruce Larson University of North Carolina at Asheville