Demand Management

John Grieve Smith

Chapter 6 in Full Employment: A Pledge Betrayed, 1997, pp 105-123 from Palgrave Macmillan

Abstract: Abstract The development of macro-economic policy during the 1980s owed much to the simplistic appeal of monetarism. The core of the monetarist approach was that inflation was purely a monetary phenomenon. The original monetarist theory as set out by Milton Friedman1 was based on the long-standing ‘quantity theory of money’. and postulated that the rate of inflation depended on the rate of increase in the supply of money in the form of cash and bank credit. Thus if the growth of the money supply were properly controlled, so would be the rate of inflation. This assumption was, however, based on the faulty hypothesis that the correlation between increases in the money supply and rising prices demonstrated that the former was the cause of the latter. As is so often true in such cases, the causal sequence is not nearly so simple. The relationship depended to a large extent on the fact that the banking system is there to supply the credit needed to enable the economy to operate, and when prices rise the supply of money will automatically tend to rise in response. It is true that the availability and cost of credit affect the ease with which prices and wages can be increased, but only through their effect on business conditions, not by any automatic direct link between the quantity of money and prices.

Keywords: Exchange Rate; Interest Rate; Monetary Policy; Central Bank; Fiscal Policy (search for similar items in EconPapers)
Date: 1997
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-37238-2_6

Ordering information: This item can be ordered from
http://www.palgrave.com/9780230372382

DOI: 10.1057/9780230372382_6

Access Statistics for this chapter

More chapters in Palgrave Macmillan Books from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().