The Monetarist Cul-de-sac

The most significant development in economic policy since 1975 has been the conversion of those concerned with the management of the British economy to the doctrine of what has been rather misleadingly described as monetarism. Although this doctrine is presented as providing a fundamentally new analysis and technique for dealing with our problems, it is in fact no more than a revival of what has always been known to students of economics as the quantity theory of money. The deficiencies of this essentially primitive view of the way the economy works were well established in the nineteenth century. It has returned to the centre of the stage, partly because of the work by Professor Milton Friedman at the Federal Reserve Board of St Louis and subsequently at the University of Chicago, and partly because it provides a powerful reinforcement for both traditional financial orthodoxy and for prevailing political beliefs. The failings of current British economic management cannot be fully understood without considering both the importance and the defects of monetarism.