MONETARIST ECONOMICS (Oxford: Basil Blackwell, 1991)

"The Counter-Revolution in Monetary Theory"

"On the average, the effect on prices come about six to nine months after the effect on income and output, so the total delay between the change in monetary growth and a change in the rate of inflation averages something like 12-18 months. That is why it is a long road to hoe to stop an inflation that has been allowed to start. It cannot be stopped overnight... In the short run, which may be as much as five or ten years, monetary changes affect primarily output. Over decades, on the other hand, the rate of monetary growth affects primarily prices” (pp. 15-16).

“It follows from the propositions I have so far stated that inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced ONLY by a more rapid increase in the quantity of money than in output.” (p. 16, our emphasis).

“Some monetarists conclude that deliberate changes in the rate of monetary growth by the authorities can be useful to offset other forces making for instability, provided they are gradual and take into account the lags involved. They favour fine tuning, using changes in the quantity of money as the instrument of policy. Other monetarists, including myself, conclude that our present understanding of the relationship between money, prices and output is SO MEAGER, that there is so much leeway in these relations, that such discretionary changes do more harm than good.... One of the most widespread misunderstandings of the monetarist position is the belief that this prescription of a stable rate of growth in the quantity of money derives from our confidence in a rigid connection between monetary change and economic change. THE SITUATION IS QUITE THE OPPOSITE.” (p. 18, emphases added).

“... inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced ONLY by a more rapid increase in the quantity of money than in output.” (MONETARIST ECONOMICS, Oxford: Basil Blackwell, 1991, p. 16, emphasis added).

M * V = T * P

“The Central Bank has no direct control over the amount of money held by the nonbanking public in the form of deposits with the clearing banks; its power is in determining the short rates of interest either directly though announcing a minimum lending rate, (or as re-discount rate) or indirectly through influencing the money market rates by open market operations. In the absence of quantitative controls over the clearing banks’ lending or borrowing activities, it can only influence the rate of change in the volume of bank deposits held by the public through the effect of changes in the interest rates; these effects.... are highly uncertain. In the case of credit-money therefore in contrast to commodity-money it is NEVER true to say that the level of expenditure on goods and services rises in CONSEQUENCE of an increase in the amount of bank-money held by the public. On the contrary, it is a rise in the level of expenditure which calls forth an increase in the amount of bank-money.... In a credit-money economy, therefore the causal chain between money and incomes or money and prices is the reverse to that postulated by the quantity theory of money. (Nicholas Kaldor. 1980. MEMORANDUM OF EVIDENCE ON MONETARY POLICY. Presented to the Select Committee on the Treasury and the Civil Service in the House of Commons Treasury and Civil Service Committee, Session 1979-1980. pp. 86-130. Memoranda on Monetary Policy: HMSO; Cited in Meghnad Desai. 1981. TESTING MONETARISM. London: F. Pinter, pp. 201-202).

THE OPTIMUM QUANTITY OF MONEY AND OTHER ESSAYS. (Chicago: Aldine Pub. Co, 1969).

“At first glance, it appears from Chart 5 that income has become more variable relative to money over the period covered. Unless we are mistaken this is a STATISTICAL ARTIFACT.” (p. 203).

GOOD-BYE TO ALL THAT