Mayer on Monetarısm: Comments from a British Point of View
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Mayer on Monetarısm: Comments from a British Point of View
Credit and Capital Markets – Kredit und Kapital, Vol. 9 (1976), Iss. 1 : pp. 56–69
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Laidler, David
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Abstract
Mayer on Monetarism: Comments from a British Point of View
I have little to quarrel with in the substance of Mayer’s paper“. However, various aspects of monetarism receive different emphasis ın different countries. My comments view monetarism from a British point of view. First, it is argued that, whatever the monetarists’ judgements about the relative importance of unemployment and inflation as social problems may be, and however these judgements differ from their Keynesian opponents, there is no such difference of ethics in Britain. There is, however, a difference in analysıs. The British monetarist argues that inflation is to be combatted with aggregate demand management, particularly monetary, policies, while unemployment should be tackled mainly by microeconomic policies geared to increasing the efficiency of the labor market. By way of contrast British Keynesianism has it that demand management policies should be geared to pursuing an unemployment target, while micro policies, in the form of wage and price controls, should be the principal anti-inflation weapon. Second, because Britain is an open economy British economists must take a view about the international nature of inflationary problems. There is a distinctively monetarist viewpoint here. It sees inflation in a world of fixed exchange rates as being determined at the level of the world economy and the problem of inflation in any one national economy as being best analyzed in terms of a theory of the transmission of inflation between regions of the closed world economy. The factors that seem important in transmitting inflation between national economies are inflationary expectations formed about the behavior of the world price level and, of course, money flows transmitted through the balance of payments. Moreover the monetarist sees the key to achieving exchange rate stability as lying in the international coordination of domestic monetary policies, rather than in the institutional framework of the foreign exchange market.