Austrians and the Quantity Theory

A few fragmented thoughts...

• "Marget's deep conviction in, and spirited argument for, the Quantity Equation's system of conceptual organization arose precisely because it was capable of the disaggregated, individualistic, and subjective analysis of temporal process that has always identified the Austrian method." "Arthur Marget in the Austrian Tradition of the Theory of Money" by John B. Egger, The Review of Austrian Economics Vol. 8, No. 2

• One of the most interesting theoretical issues to emerge from the current financial crisis is that in some instances - such as quantitative easing - the distinction between monetary and fiscal policy appears slim at best.

• According to Alex Tabarrok:

One way of understanding the current recession is that V has fallen by a lot and it is dragging down Y (just as would a sharp fall in M).  We can counter with an increase in M (monetary policy) or by an increase in V (fiscal policy).

The problem with this is that V is not an independent variable!

• Dani Rodrik:

I agree that it is absolutely essential to separate the financial packages from the fiscal ones.  The former are essentially asset swaps, the spending effects of which, if any, are indirect.  The fiscal packages, meanwhile, are intended to spur spending directly.

This reminds me of the Bank of England's defence that their QE isn't the same thing as Zimbabwe QE:

Also - and crucially - the Bank has every intention of unmonetizing the debt when the storm is past

Again, can we stop using the word "intention" in the definition of economic policy????

Bryan Caplan asks: "But what exactly is "money velocity"?" My response would be that the concept of velocity is bizarre, but is really the inverse of the demand for money. What's the demand for money? The proportion of someone's assets that they wish to hold as cash. This makes sense to me. It's what I understand by the original Cambridge equation, and the way that Greg Mankiw explains the Quantity Theory in his textbook. When Bryan says

I think I have a better way to explain velocity.  Forget turnover.  Velocity is the inverse of the percentage of income that people keep in the form of money. 

...he's repeating what I considered to be the conventional understanding. I don't know whether Bryan's overstating his own originality, or if I'm missing a subtle nuance, but I notice Scott Sumner in the comments:

I always tell my students that V isn't really the velocity of circulation, but k really is the ratio of money to gross income.