Reflections on The Quantity Theory: Pigou in 1917 and Pareto in 1920-21

In 1917, Pigou published his classic article on “The Value of Money” in the Economic Journal. In 1920-21, Pareto wrote a manuscript on monetary theory, ‘Note Critiche di Teoria Monetaria’, but it was not published until 2005 when some fragments of that manuscript were located by Fiorenzo Mornati. In both these papers the authors reflected on the quantity theory of money and both established the conditions that must be met for the theory to hold. Yet the rhetoric of Pigou in light of his analysis was very moderate, cautious and broadly supportive of the theory; whereas the rhetoric of Pareto in light of his analysis was far more direct, unequivocal and critical of the theory. In this study the analysis of Pigou and Pareto is compared and that analysis is used to explain the difference in their rhetoric pertaining to the quantity theory. It is concluded that this case is illustrative of a more general difference between Cambridge and Lausanne economics during the second generation of these two respective ‘schools’ of thought.