A Macroeconomics Reader

By Brian Snowdon; Howard R. Vane | Go to book overview

8

The structure of monetarism

Thomas Mayer
Kredit und Kapital (1975) 8, pp. 191-215, 292-313In recent years the term ‘monetarism’ has come into vogue. 1 Defined in a very narrow sense it is the view that changes in the money stock are the predominate factor explaining changes in money income, and hence is merely a new term for ‘quantity theory’. But used in a broader sense the term ‘monetarism’ encompasses a number of other propositions apart from the quantity theory of money. Unfortunately, this whole set of views is commonly judged as a single unit. This contributes to an unfortunate division of economists into monetarists and Keynesian schools with a resulting polarization. It is my impression that the Keynesians have a predisposition to reject all monetarist propositions on the basis of their ‘guilt by association’ with other monetarist propositions, while monetarists have the opposite tendency. I will therefore try to do two things in this chapter. One is to show the interrelations between the various monetarist propositions, and to illustrate that they do indeed form a coherent whole. The other is to show that despite this, the connection between various monetarist propositions is loose enough so that one can judge each one on its own merits rather than having to accept or reject monetarist doctrine as a whole. However, I will not try to judge the validity of monetarism.To do this it is necessary as a first step to define the set of propositions which characterize monetarists and distinguish them from Keynesians. Unfortunately there is no single place where one can find a listing of all monetarist propositions, and I have therefore had to construct my own list. 2 In doing so I have tried to err on the side of inclusiveness rather than exclusiveness, and I am dealing therefore with monetarism in the broad sense of a Weltanschauung. Any such listing is, of course, quite arbitrary and the reader may want to add or to delete items from the following list. 3
1 The quantity theory of money, in the sense of the predominance of the impact of monetary factors on nominal income.
2 The monetarist model of the transmission process.
3 Belief in the inherent stability of the private sector.
4 Irrelevance of allocative detail for the explanation of short-run changes in money income, and belief in a fluid capital market.

-180-

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