The Monetarist counter-revolution: from the ‘resuscitation’ to the disappearance of money

This chapter deals with the ‘anti-Keynesian counter-revolution’, starting with Friedman’s monetarism and ending with the Real Business Cycle (RBC) approach. With the partial exception of Friedman, all the major anti-Keynesian economists of the time emphasized their commitment to developing macroeconomics within an Arrow-Debreu framework. They encountered great difficulties in dealing with money, let alone financial markets, within such an environment. The ‘solution’ to these difficulties was to progressively abandon any pretence to give money and financial markets any significant role to play in standard macroeconomic models. Never before had the ‘veil’ of money been disposed of so drastically. The chapter explores the evolution from Friedman’s monetarist counter-revolution to Lucas’s monetary surprises and to the pitfalls of the ‘monetarism without money’ of the RBC models built around technological shocks. Lucas’s monetary surprises and RBC technological shocks proved largely unable to give a reasonable account of economic fluctuations experienced by actual economies.