Abstract

On the Impossibility of a Monetarist Monetary Policy

The monetary policy concept based on neo-quantity theory includes a number of grave, theory-immanent inconsistencies which could not be eliminated even in the lively debate of recent years. Over and above this, it presupposes institutional arrangements for monetary policy and a macroeconomic accounting structure which are definitely nonexistent, at least in the Federal Republic of Germany. Lastly, the neo-quantity theory campaign has been linked up to the present with front positions that are quite incomprehensible under the conditions in the Federal Republic. In this country, a counterrevolution directed against one-sided fiscalism would be baying the moon, because from the end of the second world war up to 1967, German trade cycle policy was exclusively, and thereafter predominantly, monetary and credit policy. And the notion of stability of the private sector - provided it is not perturbed by anticyclical monetary policy - sounds even more utopian in the Federal Republic of Germany than in the U.S.A. | Similarly, the only thesis of neo-quantity theory relevant to German conditions - i.e. that relating to the operating mechanism of monetary policy - cannot be accepted. The assumed money-supply process does not occur in the Federal Republic of Germany. For here the quantity of central bank money is not exogenous, not an instrument variable of the central bank, and the conventional corrections in favour of exogeneity destroy the logical relations between the so-called monetary base and the quantity of money. Furthermore, the alleged constancy of the multiplier cannot be observed anywhere, if due and proper measurements are made. Nor will be second pillar of the neo-quantity version of monetary policy carry the intended weight: Even a tolerably close relationship between the quantity of money - however it may be defined - and the national income cannot be demonstrated. The marked fluctuations in the velocity of money circulation cannot be explained by neo-quantity theory - and certainly defy control by monetary policy. Nota bene: Denial of the validity of the neo-quantity picture of the operating mechanism of monetary policy by no means implies denial of the effects of monetary and credit policy altogether.