RICHARd T ELY LECTURE the "as if"character of my interpretation of scarce research money available only -in Friedman's classic restatement of the to senior economists and of turning young quantity theory of money [3]. The re- economists into intellectual mechanics stated quantity theory is, as Patinkin has whose function was to tighten one bolt recently pointed out, essentially a gen- only on a vast statistical assembly line eralization of Keynes's theory of liquidity the end product of which would contain preference on the basis of a more sophist- nothing that could be visibly identified cated analysis of the nature of wealth and their own work. In place of this app the relation of wealth to income. Novelty the counter-revolution set up the and the requisite intellectual confusion ology of positive economics, the were provided by the substitution of the of which is not to pursue descriptive real concept of" permanent incomee"for that ism as represented by the largest possible of wealth, and the dragging acros system of general equilibrium equations trail of the red herring of human but to select the crucial relationships that that was emerging from other work permit one to predict something large conducted at Chicago at that time. Never- from something small, regardless of the theless, the restatement of the quantity intervening chain of causation. This meth theory of money did include one impor- odology obviously offered liberation to the tant and genuinely novel element, drawn small-scale intellectual, since it freed his not from Keynes but from his predeces- mind from dependence on the large-scale sors in monetary theory, which was highly research team and the large and expensive relevant to the problem of inflation and computer program. distingu The fifth criterion for success was the theorists from Keynesians; this consisted advancement of a new and important em- in its emphasis on the Fisherian distinc- pirical relationship, suitable for deter tion between the real and the money rate mined estimation by the budding econo of interest and on the expected rate of metrician. That relationship was found in price inflation or deflation as determining the demand function for money the sta the difference between the two bility of which was claimed to be the es For the reasons just given, the restate- sence of the traditional quantity theory of ment of the quantity theory provided a money. Presentation of the stable demand new theory meeting the third criterion for function for money as the essence of the success,a degree of difficulty of under- quantity theory offered a close parallel to standing just sufficient to deter the old the Keynesian consumption function of and to challenge and reward the young, the 1930,sa statistical relationship sim and hence to reopen the avenues of pro- ple to understand theoretically and not fessional opportunity for the ambitious. too hard to estimate statistically, which The fourth criterion for success was a promised, nonetheless, to contribute im ew and appealing methodology. here the portantly to the resolution of central the counter-revolutionary theory could appeal oretical issues. Moreover, since intelligent against the tendency of Keynesian eco- and gifted young men and women will nomics to proliferate into larger and yet persevere until they succeed in finding larger models of the economic system, statistical validation of an allegedly im a tendency which sacrificed theoretical in- portant theoretical relationship and will ights to the cause of descriptive realism then interpret their results as evidence and which had the incidental but impor- favor of the theory that originally sug tant detractions of demanding large sums gested the relationship their efforts will