Monetarism could save the economy

How we can avoid inflation

There is an inflation crisis, and some are blaming central banks for following outdated monetarist policies as a response. But forgetting one of the central tenets of monetarism was what led to the current inflation crisis in the first place, argues John Greenwood.

 

The UK economy is in crisis, and some economists have blamed “the current economics orthodoxy” as being responsible for making it worse. They see the Bank of England’s attempts to regulate demand by raising interest rates, thus making borrowing more expensive, as a relic of failed “monetarist” policies of the past. But this criticism is misdirected.

The setting of interest rates by central banks is only part of a sound monetary policy.  The more important part is to control the growth of the quantity of money. We can see this by noting that high interest rates can be consistent with rapid money growth and high inflation (as in Argentina and Turkey), while low interest rates can be

Continue reading

Enjoy unlimited access to the world's leading thinkers.

Start by exploring our subscription options or joining our mailing list today.

Start Free Trial

Already a subscriber? Log in

Join the conversation