The Monetarist Mistake

No sound monetarist thinks those numbers predict current inflation.

In Britain and the United States, this monetarist bet turned out well. In Western Europe, it did not.

Faced with high inflation, Thatcher backed a monetarist approach that supported high interest rates and succeeded in sharply reducing inflation.

In the 1980s, major advanced countries tried the money supply. After the monetarist approach failed, some switched to targeting the inflation rate.

In economics, Friedman revived and developed the monetarist theory that the quantity of money in circulation is the main determinant of how economies perform.

The analogy popularized by the great monetarist economist Milton Friedman was that the central bank could always deal with deflationary problems by dropping money from a helicopter.

Indeed, we understood that monetarist cures were likely to prove insufficient that sovereigns need to guarantee each others solvency and that withdrawing support too soon implied enormous dangers.

Perhaps economics departments are reorienting themselves after the Great Recession in a way similar to how they reoriented themselves in a monetarist direction after the inflation of the 1970 s.

The world has undergone massive economic deregulation, prescribed by the monetarist doctrine supported by the conservative forces dominant in the developed countries of North America, Europe, and the Far East.

Real libertarians never bought the Friedmans claim that they were as advocating a free market, neutral monetary regime Ludwig von Mises famously called Milton Friedman and his monetarist followers a bunch of socialists.

But the monetarist Keynesian post WWII near consensus, which played such a huge part in making the 60 years from 1945 2005 the most successful period for the global economy ever, may unravel nonetheless.

According to Eichengreen, the Great Depression and the Great Recession are related. The inadequate response to our current troubles can be traced to the triumph of the monetarist disciples of Milton Friedman over their Keynesian and Minskyite peers in describing the history of the Great Depression.