The Quantity Theory Of Money: The Quantity Theory Of Money

Hitherto, the term “Inflation” exclusively resided in the vocabularies of the Elites who trusted their investments to this macroeconomic indicator, which predetermined the value of their investments. However, the birth of neoclassical economics which enmeshes Classical economics; a school of thought that establishes its propositions on the quantity theory of money, with Keynesian economics have rendered the term “inflation” a commonplace (Clark, 1998 cited by Wikipedia). This is because the associated aftermaths of inflation more often than not affect to some extent both the Elites and the ordinary consumers who value their investments and purchasing powers (Keynes, 1935).

Inflation, invariably, is a monetary phenomenon that can spin an entire

Being the oldest surviving and most controversial theory in economics, the quantity theory of money has flourished over time in examining long run neutrality of monetary changes (Fisher, 1896: Cited by Dimand). Technically, the quantity theory of money denotes the direct correlation between money supply and price levels (Hume, 1752: Cited by Dimand). Money supply is the annual ratio of the stock of money in circulation or in liquid form to value of transactions performed . Also, price levels encompass the overall measure of prices in a country . Therefore, the quantity theory of money projects in simple terms that, if people hold too much money in liquid form for purchases, the price level of goods would rise up. That is, if excessive money chases fewer goods then prices of goods would shoot up to suffice the excess demand.

That notwithstanding, the impacts that, the quantity theory of money could have on the economy of Ghana would be understood fully if the propositions, by which people have lent credence to this theory are critically analysed. David Humes, the forerunner of the quantity theory of money and Irving Fisher, America’s most outstanding Economist sought to tackle the disparity in monetary neutrality between long run periods and short-run periods (Dimand, 2013). This is because David Humes (Dimand, 2013, pp. 285-286) believed

It is absolutely true that World Bank-IMF reform programmes more often than not do not fully address the primary economic hitches in developing countries, yet they ramshackle the economic framework of these evolving countries. In as much as the intended purpose of their programmes are worthwhile, the programmes confer power on these international bodies to exert leverage on the determination fiscal policies, which distorts the exchange rate, price liberations and deregulate the interest rate of developing countries. Moreover, Chhibber expounded the empirical trends that predetermined inflation some of which were unobservable, unrecorded and hence underestimated the inflationary pressures in Ghana (Chhibber, 1991, p. 4). He also mentions of a parallel market that had the potentiality of escalating the inflation rate. This is because parallel markets hold crucial data for calculating the unrecorded inflation that exist in a country (Chhibber, 1991, p. 4). To Chhibber, a structural flaw in the economic framework is the invisible indicator of inflation in sub-Saharan Countries and as such, has monumental bearings on Inflation in Ghana. That perhaps