Monetarism and Reaganomics

  • Louise Davidson


Despite the prolonged existence of idle plant and heavy unemployment among a literate, trained labour force, the United States seems unable to mobilize these resources to rebuild our decaying cities, to revitalize mass transit, to regenerate clear air and waterways, and so on. Why are we so impotent? Conventional wisdom suggests that any mobilization of idle resources for a war on such things as decay, pollution, poverty will require either additional government expenditures or private sector tax cuts. This means huge deficits financed by increasing the quantity of money which, monetarists claim, can only fuel the fires of inflation. Until we tame the dragon of inflation, we are told, these projects - no matter how desirable - must wait. Conventional wisdom says we must stoically accept tight money and stringent constraint on governmental spending for many years (the long run?) if inflation is to be stopped.


Monetary Policy Federal Reserve Money Supply Rational Expectation Restrictive Policy 
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  1. 1.
    John M. Keynes, The General Theory of Employment, Interest and Money, (New York: Harcourt, 1936), p. 58.Google Scholar
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    Cf. Paul Davidson, Money and the Real World, (London: Macmillan, 1972; 2d edn, 1978); ‘A Keynesian View of Friedman’s Theoretical Framework for Monetary Analysis’, in R. J. Gordon (ed), Milton Friedman’s Monetary Framework: A Debate with His Critics, (Chicago: University of Chicago Press, 1974); ‘The Dual-Faceted Nature of the Keynesian Revolution: The Role of Money and Money Wages in Determining Unemployment and Production Flow Prices’, Journal of Post Keynesian Economics, 2 (Spring 1980), pp. 291–307; ‘Post Keynesian Economics: Solving the Crisis in Economic Theory’, (1980), pp. 151–73, The Public Interest, special issue; Paul Davidson and Sidney Weintraub, ‘Money as Cause and Effect’, Economic Journal, 83 (December 1973), pp. 1117–32.Google Scholar
  4. 7.
    Paul A. Volcker, ‘Prepared Statement Before US Committee on Banking, Finance and Urban Affairs’, House of Representatives, 21 July 1981, p. 13.Google Scholar
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© Paul Davidson 1990

Authors and Affiliations

  • Louise Davidson

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