The Theoretical Nondebate About Monetarism

Friedman, Benjamin M. Article The Theoretical Nondebate About Monetarism Kredit und Kapital Provided in Cooperation with: Duncker & Humblot, Berlin Suggested Citation: Friedman, Benjamin M. (1976) : The Theoretical Nondebate About Monetarism, Kredit und Kapital, ISSN 0023-4591, Duncker & Humblot, Berlin, Vol. 9, Iss. 3, pp. 347-367, https://doi.org/10.3790/ccm.9.3.347 This Version is available at: https://hdl.handle.net/10419/292770 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ The Theoretical Nondebate about Monetarism By Benjamin M. Friedman, Cambridge/Mass.* During the two decades since the publication of "Studies in the Quantity Theory of Money" [20], the debate over the content and relative merits of what has subsequently come to be called "monetarism" first ripened, then matured, and has now even begun to mellow. The thrust of Thomas Mayer's [28] excellent taxonomical survey is that perhaps the time for a measured stock-taking has come. What, then, has "the monetarist debate" been all about? One key to the overall thrust of the discussions involved in the monetarist debate is that most economists today view the macroeconomic process differently than they would have done twenty years ago. In strong contrast to the views which predominated in the wake of the Oxford [3, 29] and Harvard Business School [15] surveys, most economists now believe that what happens in financial markets does play a major role in determining nonfinancial economic activity. The nexus of prices and yields and quantities of assets — not excluding "money" — does "matter". What too often becomes lost in any economic discussion, however, is the distinction between empirical propositions and theoretical ones. This distinction is especially important in making an assessment of the monetarist debate because, as key participants in the debate have progressively elaborated exactly what they think on particular questions, it has become increasingly clear that the distinguishing content of monetarism is a set of empirical propositions. One corollary to this situation is that, while the debate has encouraged researchers on both sides to sharpen and extend their theoretical analysis, those lessons which economists have thus far learned and accepted from monetarism are * The author, who is Associate Professor of Economics, Harvard University, is grateful to the National Science Foundation for support under grant SOC 74 - 21027, and to James Duesenberryy Michael Hamburger, Thomas Mayer and Allan Meltzer for helpful comments on a previous draft of this paper. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.9.3.347 | Generated on 2023-01-16 13:33:35 348 Benjamin M. Friedman primarily lessons about empirical issues. Another corollary is that the remaining points in dispute today — the monetarist debate is not, and probably never will be, over — are also primarily empirical issues of comparing relative variances and elasticities, distinguishing first-order from n-th order effects, and the like. From a theoretical standpoint the debate has by today achieved the status of a nondebate. I. Theory and Empiricism in Mayer's Taxonomy Mayer's survey set forth twelve propositions as the basic building blocks in the belief structure of today's "monetarist" economist. Although much of his paper carefully developed the interrelationships among these twelve propositions, showing why a believer in one may well be a believer in others on the same list, Mayer also went to considerable effort to note that belief in or rejection of all twelve propositions together is not a necessary condition for consistent analytical thinking. Of Mayer's twelve propositions, not one is theoretical in its distinguishing content. In other words, while each of these propositions rests on some underlying theoretical structure, in every case that theoretical base is neither more nor less than what most "Keynesian" economists also believe today. What distinguishes most of these "monetarist" propositions from what a "Keynesian" economist would be likely to believe, is their explicit statement about the magnitude of one or more parameters of the common underlying theoretical framework accepted by both monetarists and Keynesians.1 For the remainder of Mayer's propositions, the distinguishing content is of a personal-preference nature; such preferences either are implicit statements about positive issues, like the magnitude of parameter values, or are nondebatable and non-explainable gustes of the non-disputandes kind. 1 One can, of course, trivialize the empirical/theoretical distinction by saying either that all models are special cases of a more general model with certain parameters set equal either to zero or to infinity, or that many theoretical propositions are subject to empirical testing. To do so, however, is to discard a useful concept which seems especially relevant to considering the development of the monetarist debate in general and Mayer's current survey in particular. To a certain extent, the process of scientific debate consists of resolving theoretical disagreements about different paradigms into agreement on a common paradigm (which, if appropriate, may be subject to empirical testing). OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.9.3.347 | Generated on 2023-01-16 13:33:35 The Theoretical Nondebate about Monetarism 349 A brief review of eleven of Mayer's propositions, deferring for the moment his treatment of "the monetarist model of the transmission process", indicates the empirical or personal-preference essential nature of each: The quantity theory of money, in the sense of the predominance of the impact of monetary factors on nominal income (Mayer's proposition * 1) is clearly an empirical notion. It rules out no nonmonetary influences but rather simply asserts their subordinance to monetary factors, presumably in the sense of explanation of variance.2 Furthermore, as Mayer's discussion of the quantity theory makes clear, what is relevant here is the net result of monetary influences on nominal income, and not the particular way in which these influences come about. In the conceptual framework of formal models of causation, this is a proposition about the magnitudes of reduced-form coefficients and about the variances of factors taken to be exogenous, but not about the specification of the underlying structural system. The stability of the private sector (# 3) is also an empirical issue, at least in the context of the monetarist debate.3 A given system is typically stable or unstable, and in either case oscillatory or monotonic, according to the magnitudes of certain of its parameters.4 Just as importantly, in light of the relevance of the stability question for the monetarist debate, the time required for a perturbed stable system to return to equilibrium also depends on certain key parameter magnitudes. Hence the question of the stability of the private sector is an empirical issue from the outset. The rejection of the significance of allocative detail (even in the short run), together with the corollary belief in a "fluid" capital market (# 4), is again a basically empirical matter of separating first-order from secondary effects. Surely Mayer would not want to assert that monetarists believe the economic system to be wholly without friction — 2 Subdebates over whether the relevant variable to be explained is the variance of nominal income or the variance about trend, or over the relevant time unit to use in computing these variances, do not alter the fundamentally empirical nature of the quantity theory proposition. 3 Following Clower [13] and Leijonhufvud [27], a number of writers have recently explored this question in a theoretical context which has not yet intersected with the monetarist debate. Tobin's [45] contribution to this literature comes closest to relating it to questions raised by monetarism. 4 See Friedman [17] for a discussion of this stability issue in the context of Cagan's [12] demand-for-money model. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.9.3.347 | Generated on 2023-01-16 13:33:35 350 Benjamin M. Friedman i. e., that for every disappointed would-be homebuilder, unable to find a mortgage loan when short-term market interest rates exceed thrift deposit interest rate ceilings, someone else steps in with an exactly equal amount of nominal expenditure elsewhere in the economy; or that every medical student living in strapped circumstances does so because of personal preference or doubts about future earning power, rather than because of risk aversion reflected in bank lending practices. Mayer identified the monetarist approach in this respect as viewing expenditures as determined by the net excess demand for a single stock (real balances), but a quick reference to Friedman's [21] "Restatement" shows that net excess demands for other stocks (e. g., productive capital, inventories, houses, consumer durables) can theoretically matter also. Like acceptance of the quantity theory, dismissing the specific compositional detail reflects empirical rather than theoretical judgments,5 Since Mayer's first four propositions are the most familiar — and the most fundamental — elements of today's "monetarism", it is possible to deal even more briefly with the remaining eight. Focusing on the overall price level instead of on individual sector prices (#5) and using small rather than large econometric models (# 6) are elements of research strategy which follow naturally from the empirical dismissal of the importance of allocative detail.6 Using the reserve base as the instrument of monetary policy (# 7) and using the money stock as the intermediate target (#8) constitute optimal monetary policy procedures only given certain parameter magnitudes, as Poole [38] and Pierce and Thomson [37], respectively, have shown in their analyses of these two issues,7'" A constant money growth rule (#9) constitutes optimal monetary policy if and only if the variance of some relevant final-form parameter of the economic system is infinite (or if there is infinite risk aversion), 5 A reading of Mayer's own discussion of this proposition suggests that "unimportance" may describe what he had in mind better than "irrelevance" which he used. 6 Parts of Mayer's discussion of the price level question seem to suggest a fundamental theoretical issue, but the discussion is highly inconclusive in this regard. 7 The "indicator" issue has no unambiguous meaning, and no importance for monetary policy, unless the "indicator" is identical to the instrument which the central bank fixes; see Friedman [16]. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.9.3.347 | Generated on 2023-01-16 13:33:35 The Theoretical Noridcbate about Monetarism 351 just as a fully activist certainty-equivalent policy constitutes optimal monetary policy if and only if the variances of all relevant final-form parameters of the economic system vanish (or if there is zero risk aversion). As Br dinar d [8] has shown, whether the optimal degree of policy activism in the general case lies closer to the constant no-discretion rule or closer to certainty equivalence depends directly upon the variance-covariance structure of the system's final-form parameters,8 and so preference for a constant no-discretion policy rule (as a first approximation to the optimal policy) is implicitly a statement about parameter values. Belief in the absence of an inflation-unemployment trade-off (#10) is largely an empirical proposition relating to money wage illusion, as a comparison of the Phelps-Friedman [23, 35, 36] and Tobin [44] views of the Phillips curve indicates. Greater concern over inflation than over unemployment (#11) and dislike of government intervention (#12) are clearly personal preferences. They may reflect empirical judgments — for example, that the economy returns to full-employment equilibrium rapidly after a contractionary perturbation, or that a combination of cupidity and stupidity typically leads democratically elected officials to do the wrong thing — or they may reflect more abstract philosophical principles. In either case, they are empty of theoretical content in a macroeconomic sense. With the exception of "the monetarist model of the transmission process", then, none of Mayer's characteristic "monetarist" propositions has a theoretical macroeconomic issue as its fundamentally distinguishing content. II. Mayer on Monetarists on the Transition Mechanism What about the "transmission mechanism"? In the context of the debate over monetarism, this term has become a familiar shorthand for the specification of that part of the structural economic system which relates to the effect of money on nominal income (or anything else which money is presumed to affect). Almost by definition, therefore, discussion of the "transmission mechanism" is the heart of whatever theoretical content the monetarist debate has had. 8 Friedman's [19] classic treatment of this problem summarizes the relevant part of the variance-covariance structure in a single correlation coefficient. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.9.3.347 | Generated on 2023-01-16 13:33:35 352 Benjamin M. Frkdman Mayer's treatment of "the monetarist model of the transmission process" identifies four elements which are variously described as "... substantive difference[s] between the Keynesian and monetarist transmission processes" and "... links between the hypothesis of the primacy of changes in the quantity of money and the monetarist — as opposed to the Keynesian — version of the transmission process": (1) the stability of the demand for money, (2) the relative measurability of money versus interest rates, (3) the range of assets considered, and (4) the relative price effects and stock effects discussed by Brunner and Meltzer. Because of the centrality of the transmission process proposition to the whole question of the theoretical content — or lack thereof — of the monetarist debate today, it is useful to examine each of these four sub-propositions separately. First, a quick glance at page 199 of the "General Theory" [26] immediately imposes the burden of proof onto any aspiring exegete purporting to identify a belief in the theoretical instability of the demand for money as part of the usual Keynesian baggage. Once it is possible to specify the arguments of a behavioral function, as Keynes did in his famous M = Li (Y) + L2 (r) expression, then the two most familiar notions of the stability of that relationship — the variance of the implicit additive residual disturbance and the variance-covariance structure of the right-hand-side coefficients — are both empirical questions. Mayer's distinction between "numerical" and "functional" stability is at its root simply a question of what variables belong on the righthand side of the behavioral relationship. Most economists would argue that the simple money demand function M = / (Y) used by Friedman [22], for example, is unstable in the sense that it omits the systematic influence of the current interest rate as in the inventory-theoretic model of Baumol [4] and Tobin [40]; the stable relationship would be M = f (Yy r). Similarly, a strict interpretation of Keynesy speculative demand model would imply that the function M = / (Yy r) is also unstable in that it omits the difference between the current interest rate and the expected future interest rate; the stable relationship, according to this argument, would be M = / (Yy ry r — re). The argument with respect to other theoretically oriented variables, such as the anticipated rate of price inflation, or more strictly institutional influences on money demand, such as deposit interest ceilings (including the zero nominal yield on demand deposits), is exactly analogous. Once OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.9.3.347 | Generated on 2023-01-16 13:33:35 The Theoretical Nondebate about Monetarism 353 there is agreement on the specification of the behavioral relationship, questions of stability become empirical issues in the analysis of variance. Since Friedman's "Restatement" presents a theoretical specification of the money demand function which admits of many right-hand-side variables, and since most empirical work on money demand by monetarists9 has included interest rates as right-hand-side variables just as in the Keynesian approach summarized most recently by Goldfeld [25], it is clear that the stability of the money demand function, in any of its various disguises, is an empirical rather than a theoretical issue.10 What about either the liquidity trap, which was the object of much attention in the demand-for-money literature of some years ago, or the more recently discussed "crowding out" effects associated with debtfinanced fiscal policy? Both involve essentially empirical questions about the stability of the money-demand function as it relates to the presence of a wealth variable, or total portfolio constraint. The Keynesian liquidity trap requires a form of the M = / (Yy r) function which is not single-valued at some point r* and is not defined for r < r*.11 By contrast, the continuous and universally defined function M = / (Y, r, W) reflects a liquidity trap if = 1 for r < r*. Similarly, as Blinder and Solow [5, 6] and Tobin [46] have shown, the mechanics of the "crowding out" analysis hinge on a shift in the M = f (Y, r) function as the system receives an injection of outside bonds. Simply restated, the point here is that the M = f (Yy r) function is unstable because the correctly specified money demand function should be M = f (Yy r, W). The issue, once again, is not whether the demand for money is a stable behavioral relationship or an unsystematic outcome but, instead, whether a particular specification of this relationship is made to appear "unstable" by attributing to the additive residual and the several included right-hand-side coefficients effects due to systematic variation of an excluded variable. Questions of this kind are empirical and lie far 9 For an early example, see Meltzer [30]. 10 A result established in Friedman [16] is that using the money stock as a straightforward intermediate target variable constitutes the optimal monetary policy procedure only if the money demand function is both interest inelastic and perfectly stable in the sense of zero residual variance. 11 Conceptualizing the problem in this way avoids the difficulties of Patinkin's [34, Ch. 14] discussion, which determines that the liquidity trap notion is inherently a logical contradiction. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.9.3.347 | Generated on 2023-01-16 13:33:35 354 Benjamin M. Fniedman from the sense of the "stability" issue as Mayer related it to the monetarist debate.12 The second issue raised in Mayer's treatment of the "transmission mechanism" is the relative degree of measurement difficulty associated with "money" versus "the interest rate". As is clear from Mayer's discussion, neither of these two concepts necessarily corresponds to a quantity or price which is readily observable. Variation of expected future price inflation and of asset risk differentials complicate the identification of "the interest rate". Variation of asset preferences and of institutional arrangements complicate the identification of "the money stock". There is no way of knowing, a priori, which sources of variation are more severe in any given economy. The answer must reflect empirical judgments. Furthermore, even if the precise variances of the two respective measurement errors were known, how would one evaluate their relative importance, i. e., their relative contribution to the variance of prediction or control of nominal income or whatever other key variable provides the ultimate criterion for choice? Is a measurement error variance of Xt per-cent-per-annum-squared for the interest rate more or less troublesome than a measurement error variance of X2 billions-of-dollars-squared for the money stock? The answer requires empirical information about relevant aspects of the overall economic system. Yet another potential problem in this context, also not precluded on a priori grounds, is that the respective sources of interest rate and money stock measurement error may bear different comparisons in different time units. How is one to choose if the inflation expectations which lead to measurement error in identifying "the interest rate" change only slowly each quarter but vary greatly over the course of a decade, while the institutional factors which lead to measurement error in identifying any specific observable aggregate as "the money stock" vary greatly from quarter to quarter in ways which largely wash out 12 The Ando-Shell appendix to Ando and Modigliani [2] is somewhat exceptional in this regard, since it attempts to demonstrate theoretically the independence of money demand from a wealth variable (rather than arguing, as did Goldfeld [25], that a wealth dependence is reasonable a priori but is empirically insignificant). This position is Keynesian in averting the "crowding out" problem but anti-Keynesian in precluding a liquidity trap. (Both of these propositions require redefinition in a money-shorts-longs world instead of a money-bonds world, however.) OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.9.3.347 | Generated on 2023-01-16 13:33:35 The Theoretical Nondebate about Monetarism 361 public's demand for government securities as a fraction of real wealth, fsy and (VII) a definition of rs: (V) fsW = (VI) is = fa (rK, rs, rM, , > 0 > f^, (VII) rs = is-it where is is the nominal yield on government securities and n is the expected rate of price inflation. The money market equations analogously represent (VIII) a marketclearing equilibrium condition in real terms, (IX) the public's demand for money as a fraction of real wealth, /at, and (X) a definition of YM: (VIII) fiW^ (IX) fM = fM rs, rMt , fMj fM^>0> fM^ fm2 (X) rM = iM - n where iu is the (typically zero) nominal yield on money. Since the adding-up constraints implied by the wealth definition (IV) constrain the derivatives of asset demand functions (II), (VI) and (IX), one of these four relationships is redundant. Hence Tobin's model in this form is a system of nine independent equations in the nine variables (FX, rK> q> Wy fSy rs, IS, IM> rM).24c This system too is capable of generating responses to monetary policy, and Tobin has also analyzed carefully the resulting "transmission mechanism". In contrast to the implication of Mayer's paper, however, the key aspect of this mechanism is once again its dependence on relative price (yield) effects and stock effects. Monetary policy in the form dM = — dS ^ 0 disturbs the asset market equilibrium, thereby causing portfolio adjustments which change YK, q, YS, is, YM and W. The "mechanism" is thus essentially identical to that employed by BYunneY and MeltzeY. 24 Tobin explicitly noted that different interpretations of the model are possible, depending upon the particular set of nine variables assumed to be endogenous. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.9.3.347 | Generated on 2023-01-16 13:33:35 362 Benjamin M. Friedman While Tobin's model is explicitly more detailed than the Brunner- Meltzer model in its treatment of the asset markets, it is less explicit in incorporating the goods market. Nevertheless, Tobin explained clearly that the private-demand-for-goods equation which he graphed as a form of IS curve in (Ry Y) space depends positively on q,25 Just as in the Brunner-Meltzer model, therefore, the asset market adjustments due to monetary policy lead in turn to further adjustments in the goods market. Furthermore, both the Tobin model and the Brunner-Meltzer model adopt the same disaggregation methodology to sidestep completely the "asset aggregation" question which dominated much of the monetarist debate a decade ago. In particular, the issue which attracted so much attention at that time concerned the asset substitution implications of moving from the Keynesian-Hicksian-Metzlerian world, in which the only two assets were money and capital, to a three-asset world including money and capital and securities.26 Were securities to be treated as (approximately) perfect substitutes for capital, leaving the only (or principal) dividing line that between money and all non-money assets, or were securities (approximately) perfect substitutes for money, leaving the only (or principal) dividing line that between capital and all financial assets?27 Both Tobin and Brunner and Meltzer have disposed of this question by simply preserving the full three-way asset disaggregation and acknowledging that, in principle, the demand for every asset depends upon (among other things) the yield on all other assets. Relative substitutabilities are therefore an empirical matter of elasticities of functions explicitly included in the model with respect to arguments explicitly included in those functions, rather than a theoretical matter of competing paradigms. What is one to make of all this? Perhaps Brunner and Meltzer are not monetarists. Or perhaps Tobin is not a Keynesian. Perhaps. A more likely conclusion, however, is that, once monetarists and Keynesians 25 From (III), any variation in requires an inverse variation in q for fixed R; see footnote 22. Tobin did not indicate the nature of the supply-of- goods equation which would accompany his model; in the Brunner-Meltzer model the price-setting equation (3) describes the behavior of suppliers. 26 See, for example, the discussion in Tobin [41]. The discussion usually assumed that the securities in question were nominally denominated and nonindexed. 27 See Leijonhufvud [27] for an argument which resolves this question according to whether the securities are of short or long maturity. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.9.3.347 | Generated on 2023-01-16 13:33:35 The Theoretical Nondebate about Monetarism 363 specify clearly the "transmission mechanism" by which monetary policy has its effect in their respective theoretical models, these alternative mechanisms are by and large identical. On this key issue, which is the essence of the theoretical dimension of the monetarist debate, it is hard to find significant disagreement. IV. Conclusion From a theoretical standpoint, the "monetarist" label today is an old school tie. Like other such emblems of association, it may convey information about the bearer's institutional affiliations, or about his mode of expressing himself, or about his tastes and preferences, or even about who his friends are. It does not bear information about the bearer's theoretical conception of money and its role in the macroeconomic system. Theoretical questions there are plenty, but these are not bound up in the monetarist debate. Instead, in part as a result of two decades of discussion, the focus of the monetarist debate today lies with empirical issues. V. References 1. Andoy Albert, and Modigliani, Franco: "The Life Cycle Hypothesis of Saving: Aggregate Implications and Tests." American Economic Review, LI 11 (May, 1963), 55 - 84. — 2. Ando, Albert, and Modigliani, Franco: "Some Reflections on Describing Structures of Financial Sectors.,, Fromm and Klein (eds.), The Brookings Model: Perspective and Recent Developments. Amsterdam: North-Holland Publishing Company, 1975. — 3. Andrews, P. W. S.: "A Further Inquiry into the Effects of Rates of Interest." Oxford Economic Papers III (February, 1940), 32 - 73. — 4. Baumol, William J.: "The Transactions Demand for Cash: An Inventory Theoretic Approach." Quarterly Journal of Economics, LXVI (November, 1952), 545 - 556. — 5. Blinder, Alan S., and Solow, Robert M.: "Does Fiscal Policy Matter?" Journal of Public Economics, II (November, 1973), 318 - 337. — 6. Blinder, Alan S., and Solow, Robert M.: "Analytical Foundations of Fiscal Policy." Blinder et al., The Economics of Public Finance. Washington: The Brookings Institution, 1974. — 7. Bosworth, Barry: "The Stock Market and the Economy." Brookings Papers on Economic Activity (No. 2, 1975), 257 - 290. — 8. Brainardy William C.: "Uncertainty and the Effectiveness of Policy." American Economic Review, LVII (May, 1967), 411 -425. — 9. Brunner, Karl, and Meltzer, Allan H.: "Money, Debt, and Economic Activity." Journal of Political Economy, LXXX (September/October, 1972), 951 - 977. — 10. Brunner, Karl, and Meltzer, Allan H.: "An Aggregate Theory for a Closed Economy." Stein (ed.), A Conference on Monetarism. Amsterdam: North- OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.9.3.347 | Generated on 2023-01-16 13:33:35 364 Benjamin M. Friedman Holland Publishing Company, forthcoming. — 11. Brunner, Karl, and Meitzer, Allan H.: "Monetarism: The Principal Issues, Areas of Agreement and the Work Remaining." Mimeo, 1975. — 12. Cagan, Phillip: "The Monetary Dynamics of Hyperinflation." Ch. 2 in [20]. — 13. Clower, Robert W.: "The Keynesian Counter-Revolution: A Theoretical Appraisal." Hahn and Brechling (eds.), The Theory of Interest Rates. London: Macmillan, 1965. — 14. De Leeuw, Frank, and Grämlich, Edward: "The Channels of Monetary Policy." Federal Reserve Bulletin, LV (June, 1969), 472 -491. — 15. Ebersole, John: "The Influence of Interest Rates upon Entrepreneurial Decisions in Business: A Case Study." Harvard Business Review, XVII (1938), 35 - 39. — 16. Friedman, Benjamin M.: "Targets, Instruments, and Indicators of Monetary Policy." Journal of Monetary Economics, I (October, 1975), 443 - 473. — 17. Friedman, Benjamin M.: "Stability and Rationality in Models of Hyperinflation." Mimeo, 1975. — 18. Friedman, Benjamin M., and Froewiss, Kenneth C.: "Bank Behavior in the Brunner-Meltzer Model." Journal of Monetary Economics, forthcoming. — 19. Friedman, Milton: "The Effects of a Full- Employment Policy on Economic Stability." Friedman, Essays in Positive Economics. Chicago: University of Chicago Press, 1953. — 20. Friedman, Milton (ed.): Studies in the Quantity Theory of Money. Chicago: University of Chicago Press, 1956. — 21. Friedman, Milton: "The Quantity Theory of Money — A Restatement." Ch. 1 in [20]. — 22. Friedman, Milton: "The Demand for Money: Some Theoretical and Empirical Results." Journal of Political Economy, LXVII (August, 1959), 327 - 351. — 23. Friedman, Milton: "The Role of Monetary Policy." American Economic Review, LVIII (March, 1968), 1 - 17. — 24. Friend, Irwin, and Lieberman, Charles: "Short-Run Asset Effects on Household Saving and Consumption: The Cross-section Evidence." American Economic Review, LXV (September, 1975), 624 - 633. — 25. Goldfeld, Stephen M.: "The Demand for Money Revisited." Brookings Papers on Economic Activity (No. 3, 1973), 577 - 638. — 26. Keynes, JohnMaynard: The General Theory of Employment Interest and Money. New York: Harcourt, Brace & World, Inc., 1936. — 27. Leijonhufvud, Axel: On Keynesian Economics and the Economics of Keynes. London: Oxford University Press, 1968. — 28. Mayer, Thomas: "The Structure of Monetarism." Kredit und Kapital, VIII (Nos. 2 and 3, 1975), 190 - 218, 293 - 316. — 29. Meade, James E., and Andrews, P. W. S.: "Summary of Replies to Questions on Effects of Interest Rates." Oxford Economic Papers, I (October, 1938), 14- 31. —30. Meitzer, Allan H.: "The Demand for Money: The Evidence from the Time Series." Journal of Political Economy, LXXI (June, 1963), 219 - 246. —31. Merton, Robert C.: "Lifetime Portfolio Selection Under Uncertainty: The Continuoustime Case." Review of Economics and Statistics, LI (August, 1969), 247 - 257. — 32. Modigliani, Franco: "Monetary Policy and Consumption." Consumer Spending and Monetary Policy: The Linkages. Boston: Federal Reserve Bank of Boston, 1971. — 33. Modigliani, Franco, and Bmmberg, R.: "Utility Ana- OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.9.3.347 | Generated on 2023-01-16 13:33:35 The Theoretical Nondebate about Monetarism 365 lysis and the Consumption Function: An Interpretation of Cross Section Data." Kurihara (ed.), Post-Keynesian Economics. New Brunswick: Rutgers University Press, 1954. — 34. Patinkin, Don: Money, Interest and Prices. 2nd ed. New York: Harper & Row, 1965. — 35. Phelps, Edmund S.: "Phillips Curves, Expectations of Inflation, and Optimal Unemployment Over Time." Economica, XXXIV (August, 1967), 254 - 281. — 36. Phelps, Edmund S.: Inflation Policy and Unemployment Theory. New York: W. W. Norton & Company, Inc., 1972. — 37. Pierce y James L., and Thomson, Thomas D.: "Some Issues in Controlling the Money Stock." Controlling Monetary Aggregates II: The Implementation. Boston: Federal Reserve Bank of Boston, 1972. — 38. Poole, William: "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model." Quarterly Journal of Economics, LXXXIV (May, 1970), 197 - 216. — 39. Samuelson, Paul A.: "Lifetime Portfolio Selection by Dynamic Stochastic Programming." Review of Economics and Statistics LI (August, 1969), 239 - 246. — 40. Tobin, James. "The Interest Elasticity of Transactions Demand for Cash." 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Consumer Spending and Monetary Policy: The Linkages. Boston: Federal Reserve Bank of Boston, 1971. Zusammenfassung Die theoretische „Nicht-Auseinandersetzung" über den Monetarismus Bei einer Beurteilung der monetaristischen Diskussion ist es besonders wichtig, zwischen empirischen und theoretischen Thesen zu unterscheiden. Als Schlüssel hierzu haben die Diskussionsteilnehmer immer deutlicher ihre Auffassung zu einzelnen Fragen herausgearbeitet; es ist zunehmend klar geworden, daß der charakteristische Inhalt des Monetarismus eine Reihe von empirischen Behauptungen ist. Alle Lektionen über Monetarismus, die die Volkswirte insoweit erhalten und angenommen haben, aber auch jene Fragen, die noch umstritten sind, betreffen in erster Linie empirisdie Punkte. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.9.3.347 | Generated on 2023-01-16 13:33:35 366 Benjamin M. Friedman Von den zwölf diarakteristischen monetaristischen Thesen, die Thomas Mayer aufzählt"", haben elf als typischen Inhalt entweder empirische oder vorzugsweise empirische Gegenstände. Die zwölfte „Das monetaristische Modell des Transmissionsprozesses" verbindet im wesentlichen, umstrittene empirische Aussagen (die Stabilität des Verhältnisses der Geldnachfrage und die relativen Schwierigkeiten, die mit der Messung von Veränderungsraten von Geldvolumen versus Zinsniveau verbunden sind) sowie theoretische Punkte, die bei näherer Betrachtung unumstritten sind (die Rangskala von Anlagen, bei denen überschüssige Netto-Nachfrage den Änderungen der Geldanlagegewohnheiten des Publikums entspricht, und das Vertrauen auf Effekte beim Vermögensbestand und bei den relativen Preisen). In der Tat ist der Transmissionsmedianismus oder das Strukturmodell wie es in Brunner's und Meitzer's „monetaristischem Modell" umrissen wird, im wesentlichen nicht von jedem Modell zu unterscheiden, das von Tobin „keynesianisches Modell" genannt wird. Das schließliche Ergebnis einer jahrelangen theoretischen Debatte auf beiden Seiten des monetaristischen Forums ist darin zu sehen, daß die Thesen hinreichend geklärt wurden, um zu zeigen, daß gegenwärtig nur noch ein geringer Widerspruch besteht. Der Inhalt der Auseinandersetzung ist stets empirisch gewesen und bleibt empirisch. * 8. Jg. (1975) S. 191 ff. und 293 ff. Summary The Theoretical Nondebate about Monetarism The distinction between empirical propositions and theoretical ones is essentially important in making an assessment of the monetarist debate. As key participants in the debate have progressively elaborated exactly what they think on particular questions, it has become increasingly clear that the distinguishing content of monetarism is a set of empirical propositions. Those lessons which economists have thus far learned and accepted from monetarism, as well as those questions which remain in dispute, all concern primarily empirical issues. Of Thomas Mayer's twelve characteristically monetarist propositions"*, eleven are clearly either empirical or preferential in their distinguishing content. The twelfth, "the monetarist model of the transmission process," combines essentially empirical issues which are in dispute (the stability of the demand-for- money relationship, and the relative degree of measurement difficulty associated with money versus interest rates) and theoretical issues which, on close inspection, are not in dispute (the range of assets for which the net excess demand responds to changes in the public's holdings of money balances, and * Vol. 8 pp. 191 and pp. 293. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.9.3.347 | Generated on 2023-01-16 13:33:35 The Theoretical Nondebate about Monetarism 367 reliance on asset stock effects and relative price effects). Indeed, the transmission mechanism, or structural model, specified in Brunner's and Meltzer's "monetarist model" is essentially indistinguishable from that specified in Tobin's "Keynesian" model. The net impact of many years of theoretical contributions on both sides of the monetarist debate has been to clarify the issues sufficiently to demonstrate that there is actually but little theoretical disagreement. The content of the debate has been empirical all along and remains empirical. Résumé La « non-querelle » theorétique sur le monétarisme Pour juger la querelle monétariste, il est particulièrement important de disstinguer les thèses empiriques des thèses théoriques. Dans cette optique, les participants à la querelle ont toujours plus clairement développé leurs idées sur des questions isolées; il est devenu de plus en plus évident que le contenu caractéristique du monétarisme constitue une série d'affirmations empiriques. Tous les cours sur le monétarisme donnés et acceptés jusqu'à présent par les économistes, mais aussi toute les questions qui demeurent controversées, concernent en première instance des points empiriques. Des douze thèses typiquement monétaristes que dénombre Thomas Mayer*, onze offrent comme contenu distinctif des sujets empiriques ou de préférence empiriques. La douzième, «le modèle monétariste du processus de transmission », lie pour l'essentiel des affirmations empiriques controversées (la stabilité de la relation de la demande monétaire et les difficultés relatives liées à la mesure des taux de changement du volume monétaire par rapport au niveau des taux d'intérêt) à des éléments théoriques (les échelles de classement des placements, qui permettent de constater qu'une demande nette excessive correspond à des modifications des habitudes d'investissement du public et la confiance dans les effets sur le patrimoine existant et sur les prix relatifs). En réalité le mécanisme de transmission ou le modèle structurel tel qu'il a été cerné dans le « modèle monétariste » de Brunner et de Meltzer, ne se distingue par rien d'essentiel du modèle appelé «keynesien» par Tobin. Le résultat final de la longue querelle théorique opposant les deux ailes du forum monétariste consiste à constater que les thèses sont suffisamment débroussaillées pour démontrer que les contradictions sont aujourd'hui devenues mineures. Le contenu de la querelle a toujours été I empirique et continue à le demeurer. * Voir Année 1975, pages 191 et svtes et 293 et svtes. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.9.3.347 | Generated on 2023-01-16 13:33:35