The genesis of monetary theory is in the writings of Aristotle (4th century BC), who saw that money, by custom rather than by nature, was a medium of exchange, a measure of value and a store of value. The earliest theory in terms of the supply of, though not of the demand for, money is John Locke’s who developed a quantity theory of money. Hume went further in warning against expanding the money supply (paper or credit) of money beyond the increase in the output and thereby raising prices, which would reduce exports and cause an outflow of currency. Later economists built on Locke and Hume.

Occasional Paper No. 53

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