This theory was developed by the classical thinkers like Adam Smith, Ricardo, J.S. Mill, and later on popularized by Prof. Irving fisher.

Statement of the Theory

According to this theory, the value of money changes inversely and the price level directly, to the changes in the quantity of money. In its extreme form, the theory states that, other things remaining equal, the changes in the general price level are directly proportional to changes in the supply of money. An increase in the supply of money would bring proportionate increase in the price (i.e., a fall in the  in the  in the value of money). Similarly, a fall in the supply of money will tend to bring down the prices (i.e., the value of money will increase.)

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