13 May 2014
It has happened often in physics that a single phenomenon is explained, or a single puzzle resolved, by two theories that seem at first sight to be completely divergent but are later shown to be equivalent. Examples that spring to mind are Heisenberg's matrix mechanics and Schrodinger's wave mechanics or the quantum electrodynamic theories of Tomonaga, Schwinger and Feynman. In macroeconomics, the second half of the 20th century was dominated by the dispute between Keynesianism and monetarism, especially their divergent explanations of recessions, a dispute that continues to this day. This paper demonstrates that the conflict hinges on a simple dimensional misinterpretation of one of the variables in the quantity theory of money. At their heart, the two theories are equivalent.
Read the entire paper: The mathematical equivalence of Keynesianism and monetarism