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History of Economic Analysis part 112

History of Economic Analysis part 112. At the time of his death in 1950, Joseph Schumpeter-one of the major figures in economics during the first half of the 20th century-was working on his monumental History of Economic Analysis. A complete history of humankind's theoretical efforts to understand economic phenomena from ancient Greece to the present, this book is an important contribution to the history of ideas as well as to economics. | History of economic analysis 1072 the chief progress of monetary theory in more recent times has been the result of a tendency to tear up the straitjackets and to introduce explicitly and directly all that the best presentations of the quantity theory relegated into the limbo of indirect influences. Lesson in economics more than elsewhere a good cause and one that will win out eventually may be so inadequately defended as to appear to be bad for decades together. c Purchasing Power Parity and the Mechanism of International Payments. Before going on let us touch upon two other matters. In that period more definitely than before we find in the neighborhood of the quantity theorem its old ally the purchasingpower-parity theory of foreign exchange that is the proposition that if left to itself the price of a country s monetary unit in terms of foreign currencies tends to be inversely proportional to the relations between the respective price levels. It was repeatedly stated for example by Marshall and Schlesinger but when in the discussion on the exchange troubles that arose during and after the First World War Cassel pressed it energetically into service it struck most people like a new discovery.18 As I have stated it the proposition does not seem very exciting. Both Marshall and Schlesinger noticed it as they went along without putting much emphasis upon it. And we may discern in the torrent of publications which purchasing power parity was to produce a quiet little inlet of discussions about the merits of that proposition as a tool of analysis.19 The excitement sprang from the fact that Cassel linked it up with a strict quantity theory and in application with the problems of war inflation. In consequence of this the purchasingpower-parity theory turned into the so-called inflation theory of foreign exchange which reads increase in M raises the price level the rise in a country s price level decreases the value of its monetary unit in terms of non-inflated foreign .