Abstract
The spread of monetarism in the 1970s did not occur by a simple process of intellectual conquest. In most countries monetarist ideas could not be incorporated in policy formation until they had adapted to local economic conditions and recognised existing traditions of monetary management. Although the framework of financial control assumed some monetarist characteristics in virtually all the industrial nations, each nation still retained distinctive institutional arrangements and policy approaches. The UK posed a particular problem. With its long history of monetary debate and practice, and with its unusually well-established institutional structures, it did not readily assimilate Chicago School doctrines. Nevertheless, in the late 1970s and early 1980s the media, leading politicians and the public at large believed that British macroeconomic policy was becoming progressively more monetarist. Perhaps the apex of monetarist influence on policy came in the Budget of 1980 with the announcement of the medium-term financial strategy, in which targets for both monetary growth and the budget deficit were stated for four years into the future. In a statement to regional city editors on 9 June 1980 Nigel Lawson, Financial Secretary to the Treasury (later to be Chancellor of the Exchequer), said that the ‘medium-term financial strategy is essentially a monetary — or, if you like, monetarist — strategy’.1
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Notes
T. Mayer, The Structure of Monetarism (New York and London: Norton, 1978). See, particularly, p.2 for a list of 12 characteristic monetarist propositions.
For an example of the approach see the chapter on ‘Bank lending and monetary control’ in C. A. E. Goodhart, Monetary Theory and Practice (London, Macmillan: 1984), pp. 122–45.
See, for example, J. Burton, ‘Trade Union’s Role in the British Disease: “An Interest in Inflation”’, pp.99–111, in A. Seldon (ed.) Is Monetarism Enough? (London: Institute of Economic Affairs, 1980) particularly pp. 105–6,
T.G. Congdon, ‘Why has Monetarism Failed so far?’, in The Banker (April 1982), pp.43–9.
The subject is also discussed in T.G. Congdon, Monetarism: An Essay in Definition (London: Centre for Policy Studies, 1978), particularly pp.53–6.
J.M. Keynes, A Tract on Monetary Reform (1923),
reprinted in The Collected Writings of John Maynard Keynes vol. IV, ed. by D. Moggridge and E. Johnson (London: Macmillan for the Royal Economic Society, 1971) pp.126, 132 and 138.
The quotation comes from p.71 of P. Meek, ‘Comment on Papers Presented by Messrs. Force and Coleby’, in P. Meek (ed.), Central Bank Views on Monetary Targeting (New York: Federal Reserve Bank of New York, 1983), pp.70–1.
The quotations are from p.57 of M. Friedman, ‘Response to Questionnaire on Monetary Policy’, in House of Commons Treasury and Civil Service Committee (Session 1979–80), Memoranda on Monetary Policy (London: HMSO, 1980), pp.55–62.
J.M. Keynes, A Treatise on Money: 2. The Applied Theory of Money (1930)
reprinted in Collected Writings ,vol.VI (1971), pp.224 and 225.
J.M. Keynes, The General Theory of Employment, Interest and Money (1936),
reprinted in Collected Writings ,vol. VII (1973), p.327.
Keynes, Treatise 2, in Collected Writings ,vol. V (1971), pp.30–2 and pp.217–30. These distinctions anticipate the more celebrated analysis of the motives for holding money in The General Theory.
The quotation is from p.97 of P.E. Middleton, ‘The Relationships between Fiscal and Monetary Policy’, in M.J. Artis and M.H. Miller (eds), Essays in Fiscal and Monetary Policy (Oxford University Press, 1981), pp.95–116.
See pp.21–3 of T.G. Congdon, ‘The Analytical Foundations of the Medium-Term Financial Strategy’, in M. Keen (ed.), The Economy and the 1984 Budget (Oxford: Basil Blackwell for the Institute for Fiscal Studies, 1984), pp. 17–29.
Mentioned on p.5 of J.L. Jordan, ‘The Anderson Jordan Approach after nearly 20 years’, in Federal Reserve Bank of St. Louis Review (October 1986), pp.5–8.
The quotation is from p.2 of C.J. Allsopp, ‘The Assessment: Monetary and Fiscal Policy in the 1980s’, in Oxford Review of Economic Policy ,1, 1 (Spring 1985), pp.1–19.
See D. Laidler on the case for gradualism, in Laidler, Monetarist Perspectives (Oxford: Philip Allan, 1982), Ch.5, pp.176–7.
M. Friedman, Unemployment versus Inflation? (London: Institute of Economic Affairs, 1975), pp.30–5. The quotations are from pp.32 and 33.
A. Budd, S. Holly, A. Longbottom and D. Smith, ‘Does Monetarism Fit the UK Facts?’ in B. Griffiths and G.E. Wood, Monetarism in the United Kingdom (London: Macmillan, 1984), pp.75–119.
See, for example, M. Parkin and G. Zis (eds.), Inflation in Open Economies (Manchester University Press and University of Toronto Press, 1976).
See R.J. Ball and T. Burns, ‘Long-run Portfolio Equilibrium and Balance-of-Payments Adjustment in Econometric Models’, in J. Sawyer (ed.), Modelling the International Transmission Mechanism (Amsterdam: North-Holland, 1979) for an example of his writings at that time.
Reprinted in M. Friedman, Essays in Positive Economics (University of Chicago Press, 1953).
G. Maynard, The Economy under Mrs. Thatcher (Oxford: Basil Blackwell, 1988), p. 100.
A. Walters, Britain’s Economic Renaissance (New York and Oxford: Oxford University Press, 1986), pp.117 and 121. The description of M3 as a ‘credit aggregate’ is surprising. M3 consists of notes, coin and bank deposits. To say that its growth is driven by bank credit is not to say that bank deposits are the same thing as bank loans. (They evidently are not.) In any case, the growth of M1 — or, indeed, even of MO — is also driven by credit. T.G. Congdon ‘Credit, Broad Money and the Economy’, in D. Llewellyn (ed.), Money (London: Macmillan, for the Economic Research Council), forthcoming.
Liverpool Research Group in Macroeconomics Quarterly Economic Bulletin (October 1987), p. 13. If this proposition were true, it would have drastic implications for economic theory and policy. But it overlooks the banks’ liquidity-transformation role. Since cheques can be written against bank deposits and there is no loss of cheque-writing ability because of the existence of bank loans, the simultaneous expansion of deposits and loans increases the economy’s liquidity and can change behaviour.
P. Minford, ‘The Exchange Rate and Monetary Policy’, pp. 120–42, in W.A. Eltis and P.J.N. Sinclair (eds), The Money Supply and the Exchange Rate (Oxford: Clarendon Press, 1981). The quotation is from p. 121.
These worries, which were particularly serious in Italy, Ireland and Belgium, are discussed in Chapters 1–3 of T.G. Congdon, The Debt Threat (Oxford: Basil Blackwell, 1988).
Quoted in Lord Kahn, On Re-reading Keynes (Oxford University Press, 1974), pp.22–3.
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Congdon, T. (1990). British and American Monetarism Compared. In: Hill, R. (eds) Keynes, Money and Monetarism. Keynes Seminars. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-09626-8_5
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