A Reassessment of Scholastic Monetary Theory

During the sixteenth century, successive waves of gold and silver reached Spain from America and then rolled across Europe to the North and East. Contemporaries made two observations. First, the inflow of bullion was associated with inflation. Second, a given amount of money in a country with relatively low prices tended to exchange for a larger amount of money in a country with relatively high prices. The scholastic doctors in Salamanca who interpreted these observations are traditionally credited with two modern insights, namely the quantity theory of money, and the principle of purchasing-power parity.