Maye , Thomas
A icle
The S uc u e o Mone a ism (II)
K edi und Kapi al
P o ided in Coope a ion wi h:
Duncke & Humblo , Be lin
Sugges ed Ci a ion: Maye , Thomas (1975) : The S uc u e o Mone a ism (II), K edi und Kapi al, ISSN
0023-4591, Duncke & Humblo , Be lin, Vol. 8, Iss. 3, pp. 293-316,
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The S uc u e o Mone a ism (II)
By Thomas Maye , Da is/Cal.
In Pa I o his pape which appea ed in he p e ious issue o his
jou nal* I selec ed wel e p oposi ions cha ac e izing he mone a is ou -
look, and discussed six o hem. I will now disouss he emainde , and
hen summa ize bo h pa s o his pape . Th ee o hese p oposi ions
ela e o mone a y policy. They a e he choice o an indica o , he
choice o a a ge , and he use o a mone a y g ow h ule58.
VII. Mone a y Indica o s
A mone a y policy indica o is a a iable ha measu es he h us ,
ha is he di ec ion and .magni ude, o mone a y policy. I «should he e-
o e be a a iaible which is closely con olled by he cen al 'bank a he
han being endogenous o he economy. Accu a e da a on i should be
a ailable wi hou delay, and i should ha e a e y high co ela ion wi h
he a ge , o goal, a iables. These equi emen s ule ou bo h he
money s ock and he long e m in e es a e as mone a y indica o s. To
be 'Su e, o a mone a is he s ock o money is he ul ima e indica o o
mone a y policy in a di e en sense, becaiuse changes in he money s ock
o e ell changes in income. Ru , a leas in he Uni ed S a es, acou a e
da a on he money s ock a e no a ailable quickly, and besides, he
money s ock is pa ly endogenous, being some dis ance emo ed om
cen al bank ac ions. Hence, i canno be used as an indica o as he e m
is de ined in his con ex . Simila ly, o he Keynesian he long e m
in e es a e is no an adequa e indica o because i is no unde he
close con ol o he cen al bank. Thus, nei he mone a is s no Keynes-
ians can use as hei indica o s hose a iables which would i bes in o
* pp. 190.
58 The indica o s- a ge s dicho omy has ecen ly been challenged by Ben-
jamin F iedman ("Ta ge s, Ins umen s and Indica o s o Mone a y Policy",
Jou nal o Mone a y Economics, o hcoming). Howe e , since I am dealing
he e wi h he dispu e be ween mone a is s and Keynesians bo h o whom
gene ally use his dicho omy, I am accep ing i wi hou ques ioning i s alidi y.
:o K edi und Kapi al 3/1975
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294 Thomas Maye
hei models. Bo h o hem ha e o selec o he indica o s which a e
close o he ools used by he cen al bank.
Mone a is s a o some measu e o o al ese es such as he ese e
base adjus ed o changes in ese e equi emen s o else unbo owed
ese es. These a e clea ely unde he con ol o he cen al bank, hey
a e measu ed accu a ely wi hou delay, and hey ha e a powe ul e ec
on he money s ock, he ¡mone a is s' a ge a iable. Keynesians, on he
o he hand, p obably use he sho e m in e es a e as hei a o ed
indica o 59. The sho e m a e can hen be ela ed o one o hei
a ge a iables, he long e m in e es a e, ia e m s uc u e heo y.
And in addi ion, he sho - e m a e is a a ge in i s own igh o
Keynesians since i a ec s lows in o deposi o y ins i u ions, and hence
esiden ial cons uc ion. Bu his does no make i an indica o .
Bu i is impo an o no e ha he choice o a mone a y policy in-
dica o is o a conside able ex en isola ed om he es o he Keynes-
ian-mone a is dispu e. The mone a is chooses a mone a y ¡base measu e
o wo easons. One is ha his analysis o he money supply p ocess
ells him ha his is he a iable which bes e lec s mone a y policy
ac ions. The second is ha he belie es he mone a y base (adjus ed o
ese e equi emen changes) o be he bes indica o o u u e changes
in he money s ock. As a as he i s o hese easons is conce ned his
in ol es li le dispu e wi h Keynesians i only because ew Keynesians
ha e bo he ed o o mula e a money supply hypo hesis.
Tu ning o he second eason, he p edic i e powe o a base measu e,
i is ce ainly ue ha one can p edic he money 's ock ai ly well in
his way. Bu suppose ha i we e shown ha changes in he sho e m
in e es a e a e an e en 'be e indica o o changes in he money s ock.
In his case, he mone a is 'should use he sho - e m in e es a e as his
indica o o p edic he money s ock. And he possibili y ha he sho
e m in e es a e is a be e p edic o o he money s ock han a e
a ious ese e measu es is by no means a e ched60. Fu he mo e, i i
59 I ha e ph ased his s a emen in such a en a i e way because I am a
om ce ain ha mos Keynesians eally p e e he sho e m a e as hei
indica o . Unlike he mone a is s, Keynesians ha e no w i en much on his
opic.
60 See Richa d Da is and F ede ick Schad ack, "Fo ecas ing he Mone a y
Agg ega es wi h Reduced Fo m Equa ions", in Fede al Rese e Bank o New
Yo k, Mone a y Agg ega es and Mone a y Policy (New Yo k, 1974), pp.
60-71. See also F ed J. Le ine, "Examina ion o he Money-S ock Con ol
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The S uc u e o Mone a ism (II) 295
we e somehow shown ha mone a y policy changes a e e lec ed be e
by he Fede al Funds a e han by a ese e base measu e, he mone a -
is could abandon his money supply hypo hesis wi hou he eby weaken-
ing his belie in any o he o he mone a is p oposi ions.
Con e sely, a Keynesian could selec o al ese es as his policy in-
dica o , and use his a iable, a he han he sho e m a e, o p edic
long e m in e es a es. The unse led s a e o e m s uc u e heo y
ha dly p o ides
IUS
wi h imuch con idence in ying o p edic he long
a e on he basis o he sho e m a e. Empi ically, Da id Fand has
shown ha while he e is a ai ly high co ela ion be ween long e m
and sho e m a es, "in a cyclical con ex , he long a e is ela i ely in-
dependen o he sho - un mo emen s in he 'sho a es"61.
In addi ion o i s use in gauging policy, a mone a y indica o can also
be used1 o measu e he h us o he mone a y impulse ega dless o
whe he his a ises in he p i a e o public sec o . Fo his a mone a is
may wan o use he money s ock, while a Keynesian may wan o use
a sho e m in e es a e. Thus, i he money s ock is g owing a , say,
a 10 pe cen a e, while he Fede al Funds a e is 12 pe cen , a mon-
e a is would call his a si ua ion o mone a y ease, while a Keynesian
would call i igh money.
This dis inc ion has some supe icial ela ion o he dispu e abou he
ansmission mechanism ibeca use he Keynesian is looking a an in e es
a e while he mone a is is using he money s ock. Bu , as discussed
abo e, his dispu e is, in pa , a ma e o e minology a he han a
genuine dispu e. (And, as will be shown below, in pa i is he esul o
many Keynesians no being ai h ul o hei Wicksellian adi ion.)
Ano he connec ion is ha o he Keynesian he sho e m in e es
a e is a alid pa ial indica o because i a ec s he low o unds in o
inancial in e media ies, and hence esiden ial mo gage lending and
cons uc ion. (This is a channel s essed s ongly in he FMP-model.)
App oach o Bu ge , Kalish, and Babb", Jou nal o Money, C edi and Bank-
ing, ol. V, No embe 1973, pp. 924-938; and James Pie ce, and Thomas
Thomson, "Some Issues in Con olling he S ock o Money", in Fede al
P ese e Bank o Bos on, Con olling Mone a y Agg ega es II: The Implemen-
a ion (Bos on n. d.), pp. 115-136.
61 Da id Fand, "A Time Se ies Analysis o he 'Bills-Only' Theo y o
In e es Ra es", Re iew o Economics and S a is ics, ol. XLVIII, No embe
1966, p. 369.
20*
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296 Thomas Maye
Thus, he e we ha e a componen o mone a ism which has only a
limi ed ela ionship o he o he componen s. The 'dispu e abou he
p ope indica o :is o a conside able ex en an isola ed echnical issue.
I s in usion in o he mone a is -Keynesian (deba e can pe haps be ex-
plained as an his o ical -acciden . In he pas he Fede al Rese e has
used sho e m in e es a es and money ma ke condi ions as i s in-
dica o in a di e en sense om he way he indica o concep is de-
ined he e. Ins ead o ea ing sho e m a es and money ma ke con-
di ions as an in e media e s ep on he way o long- e m in e es a es o
o he money s ock, i looked a sho e m a es and money ma ke con-
di ions as an immedia e guide o how i s policy is a ec ing income. In
his way — which does no allow he money s ock o be a ecognized
pa o he p ocess — he use o sho e m a es and money ma ke
condi ions is, o cou se, con a y o mone a ism. Bu as a esul o he
insigh s which mone a is s ha e b ough o his deba e indica o s a e no
longe hough o in his way.
VIII. Mone a y Policy Ta ge s
Ob iously mone a is s wan o iuse he money s ock as he a ge o
mone a y policy. Keynesians, on he o he hand, p e e o iuse long e m
in e es a es o , in some cases, bank c edi o o al c edi . The ex en
o which each o hese a ge s i s in o he unde lying heo ies o bo h
schools can be seen bes by conside ing he a gumen s o each o hese
a ge s.
To s a wi h a compa ison o he in e es a e a ge and he money
s ock a ge he e is again he measu emen p oblem p e iously discussed
in connec ion wi h he ansmission p ocess.
Bu wi h espec o he p oblem o chosing a a ge , he Keynesian is
less wo ied abou he di icul ies o measu ing he in e es a e. This is
so because one impo an Keynesian channel o he impac o mone a y
policy ope a es h ough he lows o unds in o deposi o y ins i u ions.
And since such lows depend upon a compa ison o in e es a es o de-
posi o y ins i u ions wi h open ma ke a es, he p oblem o in e ing
he expec ed eal a e om he -nominal in e es a e does no a ise.
(And he p oblem o combining a ious obse ed and impu ed a es
in o " he in e es a e" is also less se ious.) Fu he mo e, ano he chan-
nel is he e ec o in e es a es on he ma ke alue o he households'
s ock o secu i ies, and hence on consump ion. He e oo, he p oblem o
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The S uc u e o Mone a ism (II) 297
measu ing he in e es a e is no 'se ious. Howe e , o he adi ional
"cos o capi al" e ec o in e es a es on in es men , he measu emen
p oblem s ill exis s.
Apa om he measu emen p oblem he choice o a a ge in ol es
ano he issue which a ises om ou inabili y o p edic p ecisely changes
in he liquidi y p e e ence schedule and in expendi u e incen i es62. I
we would 'know e y accu a ely he -liquidi y p e e ence cu e as well
as expendi u e incen i es, hen he cen al bank could easily selec he
in e es a e which would op imize i s objec i es. Since wi h a known
liquidi y p e e ence cu e we can in e a pa icula quan i y o money
o each a e o in e es and ice e sa, lea ing aside he abo e discussed
measu emen p oblem, i would be a ma e o comple e indi e ence
whe he he cen al bank picks a pa icula in e es a e a ge o a
money s ock a ge .
Bu in ac uali y he cen al bank does no know he liquidi y p e-
e ence schedule and he s eng h o he expendi u e incen i es accu-
a ely. Suppose ha he liquidi y p e e ence cu e 'shi s ou wa d un-
expec edly. All he cen al bank obse es is a ise in he in e es a e.
I i uses an in e es a e a ge i esponds o his ise in he in e es
a e by inc easing he quan i y o money su icien ly o lowe i back
o i s p e ious le el63. Wha i does is o sa is y he inc eased demand
o money, o in e ms o he cash balance equa ion, i o se s he ise
in he Camb idge "k" by aising "M", hus keeping "PT" cons an . I i
had used a money s ock a ge ins ead o i s in e es a e a ge , i would
ha e kep he money s ock cons an and allowed he in e es a e o
ise. This inc ease in he in e es a e would hen ha e educed income
below i s p e ious (p esumably op imal) le el.
On he o he hand, suppose ha he liquidi y p e e ence cu e is
p edic able, bu ha expendi u e incen i es inc ease unexpec edly64.
62 Fo a de ailed exposi ion o his a gumen see William Poole, "Op imal
Choice o Mone a y Policy Ins umen s in a Simple S ochas ic Mac o Model",
Qua e ly Jou nal o Economics, ol. 84, May 1970, pp. 197-216; and "Rules
o Thumb o Guiding Mone a y Policy" in Boa d o Go e no s, Fede al Re-
se e Sys em, Open Ma ke Policies and Ope a ing P ocedu es, S a S udies,
Washing on, D. C., pp. 135 - 189.
63 The assump ion ha he money g ow h a e and he in e es a e a e
nega i ely co ela ed is jus i ied by he analysis being only e y sho un.
64 I is wo h no ing ha wha is ele an is no he s abili y o ei he he
IS o LM cu e, bu i s p edic abili y since he cen al bank can eadily o se
p edic able luc ua ions.
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298 Thomas Maye
This oo aises he a e o in e es . I he cen al ibank has an in e es
a e a ge and coun e ac s his ise in he in e es a e i allows income
o ise in an unin ended way. In o he wo ds, i expendi u e incen i es
inc ease he in e es a e should also inc ease, hus ac ing as an au o-
ma ic s abilize . Hence, i i is expendi u e mo i es a he han he li-
quidi y p e e ence unc ion which changes in an lunp edic ed way, hen
an in e es a e a ge does ha m, anid a money s ock a ge is p e e able.
Bu i i is he liquidi y p e e ence unc ion which is he [unp edic able
one, hen an in e es a e a ge is supe io 65.
On bo h o hese issues a mone a is p e e s a money s ock a ge . Re-
ga ding he measu emen p oblem, someone who accep s he .mone a is
ansmission p ocess belie es ha he money s ock can be measu ed mo e
accu a ely han can he in e es a e. On he ela i e p edic abili y o
he liquidi y p e e ence unc ion and he expendi u e unc ions a quan-
i y heo is conside s he liquidi y p e e ence unc ion (i. e. he demand
o money) o be he s able o he wo66. Hence, he mone a is 's p e-
e ence o a money s ock a ge o e an in e es a e a ge can be seen
as an implica ion o he quan i y heo y and i s ansmission mechanism.
Apa om he money s ock and he long e m in e es a e he e is
a hi d majo po en ial a ge o mone a y policy. This is a c edi
measu e, 'such as bank c edi o o al c edi . He e oo, he quan i y
heo y and he mone a is 's e sion o he ansmission p ocess decide
he issue o he mone a is . As a quan i y heo is he belie es ha he
e ec o changes in he money s ock on income is mo e impo an han
he e ec o changes in bank c edi , o o he wise he would hold a
quan i y heo y o bank c edi a he han a quan i y heo y o money.
65 A hi d aspec o he choice be ween a money s ock a ge and an in e es
a e a ge ela es o he p oblem o lags in he e ec s o mone a y policy.
Since many ypes o expendi u es espond only slowly o a change in he
in e es a e he e ec s o mone a y policy end o be delayed. Bu his delay
can be o se i in e es a es ini ially o e shoo hei new le el. (See Donald
Tucke y "Dynamic Income Adjus men s o Money Supply Changes", Ame ican
Economic Re iew, ol. LVI, June 1966, pp. 433 - 449.) Inso a as he cen al
bank ollows a money s ock a ge such an o e shoo occu s au oma ically. Bu
wi h an in e es a e a ge , he cen al bank may ail o allow o he equi ed
o e shoo . And e en i i aims o an o e shoo , i does no know how la ge i
should be.
66 The mone a is looks upon expendi u e mo i es as s able oo, unless dis-
u bed by a ia ions in he money g ow h a e, since he ea s he p i a e sec o
as s able, bu e en so, he akes he demand o money as he s able one.
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The S uc u e o Mone a ism (II) 299
Mo eo e , in his analysis o he ansmission p ocess he mone a is e-
jec s a c edi and bo owing cos in e p e a ion67.
The ma e is mo e complex o a Keynesian. As indica ed abo e, he
p oblem o measu ing he in e es a e is o se ious conce n o him only
wi h espec o he cos o capi al channel. Since di e en Keynesians
a ach di e en weigh s o his channel, i is ha d o say how signi ican
he measu emen p oblem is o he Keynesian
s
choice o a a ge .
Fu he mo e, a Keynesian may — o may no — be conce ned abou
he di icul ies o measu ing he money s ock.
Wi h ega d o he second issue, he ela i e p edic abili y o he
liquidi y p e e ence and expendi u e unc ions, Keynes o iginally con-
side ed bo h he liquidi y p e e ence unc ion and he in es men unc-
ion o be e a ic wi hou indica ing which was he «mo e 'uns able.
Mode n Keynesians, on he o ihe hand, ha e deemphasizeid he spe-
cula i e mo i e o liquidi y p e e ence which o Keynes was he sou ce
o i s ins abili y, and appea o belie e ha he liquidi y p e e ence
unc ion is ai ly s able and p edic able. On he o he hand, Keynesians
also belie e ha in es men and consump ion, while uns able, a e p e-
dic able. I is he e o e no eally clea wihe he Keynesians ypically
conside he liquidi y p e e ence unc ion o he expendi u e unc ions
o be he mo e p edic able. Pe haps he e is a p esump ion ha , on he
whole, hey conside he demand o money o 'be he mo e p edic able
a iable which should make hem p e e a money s ock a ge .
Mo eo e , inso a as hey a e he in ellec ual hei s o he Wicksellian
adi ion, Keynesians should p e e a money s ock a ge o an in e es
a e a ge . I was Wicksell who augh us he dange s o keeping he
money a e o in e es ixed (as happens wi h an in e es a e a ge )
when he na u al a e o in e es changes. All in all, Keynesian heo y
is mo e o less neu al on he issue o he money s ock e sus he in e -
es a e as he a ge .
The hi d po en ial a ge is he olume o bank c edi , o o al
c edi . Some Keynesians ha e accep ed such a ge s and hey, o cou se,
di e sha ply om he mone a is s. Bu one can be a good Keynesian
while ejec ing he easoning o he Radcli e Repo .
67 A ou h po en ial a ge , and money ma ke condi ions, is ha dly aken
se iously anymo e, a leas in he Uni ed S a es.
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300 Thomas Maye
IX. The Mone a y G ow h Rule
The nex componen o mone a ism is he cons an money g ow h
ule. Such a ule i s well in o he mone a is amewo k on se e al
coun s. Fi s , i is closely ela ed o he quan i y heo y. I he demand
o «money is indeed cons an when adjus ed o end, hen a cons an
g ow h a e o he supply o money would esul in income oo g ow-
ing a a cons an a e68. Hence, someone who accep s die quan i y
heo y o money is much mo e likely o a o cons an money g ow h
hen is someone who belie es ei he ha he demand o money is un-
s able, o ha luc ua ions in income a e la gely due o nonmone a y
ac o s, ac o s which he cen al ¡bank can o se 69. Second, a belie in
cons an money g ow h also i s in wi h he mone a is 's belie ha he
p i a e sek o is inhe en ly s able. I his is he case he e is a bes a
limi ed amoun o good ha could 'be accomplished by a ia ions in he
money g ow h a e. Thi d, belie in a cons an money g ow h a e e-
qui es accep ance o a money s ock a ge , o he mone a y g ow h ule
is eally only a special e sion o he
¡use
o a mone a y a ge ; i me ely
se s a speci ic, un a ying a ge .
In addi ion, he cons an money g ow h ule also has some connec-
ion, albei a loose connec ion, wi h wo o he componen s o mone-
a ism, he disin e es in alloca i e 'de ail, and he mone a is iew o
he p ice le el. Someone who is in e es ed in alloca i e de ail is likely o
be conce ned, om ime o ime, wi h he impac o inancial 's in-
gency on a pa icula sec o , such as esiden ial cons uc ion. He is
he e o e likely o eel, a leas occasionally, ha he mone a y g ow h
68 A mone a y g ow h ule is supposed o p o ide a g ow h a e o money
income which is s able, hough his may be a s able a e o in la ion o de la ion.
69 This conclusion is subjec o he ca ea ha in hei o mal heo y mone-
a is s conside he demand o money o be s able only in a unc ional sense.
Hence, i many o he a iables in he money demand unc ions luc ua e, he
demand o money, and he e o e income, would also luc ua e unde a cons an
money supply ule. Bu acco ding o F iedman, and pe haps o mos mone-
a is s, his dis inc ion be ween he unc ional s abili y and he cons ancy o he
demand o money does no c ea e a se ious p oblem. Inso a as he demand
o money is a unc ion o pe manen income o weal h i is likely o g ow a
a s eady a e. To be su e, i is also a unc ion o he nominal a e o in e es .
Bu luc ua ions in he nominal in e es a e a e la gely he esul o p e ious
luc ua ions in he money g ow h a e and p ices. Hence, gi en a cons an
money g ow h ule, eloci y would end o be ai ly s able in a nume ical, as
well as a unc ional, sense.
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The S uc u e o Mone a ism (II) 307
de e mina ion o in e es a es and bank c edi o ee ma ke , and
can con ine i s a en ion o he s ock o money, some hing jus abou
always conside ed ou side he domain o he p i a e ma ke . A mone a y
g ow h ule, ob iously educes he need o disc e iona y policy. And i
he Phillips-cu e is such ha one canno success ully ade o un-
employmen and in la ion hen he e is ano he ask he go e nmen
should no a emp .
Finally, he e a e se e al links be ween a conce n abou in la ion
and conce n abou he g ow h o go e nmen . One is ha in la ion can
easily lead o poli ical p essu es o he imposi ion o wage and p ice
con ols. A second is ha , gi en a p og essi e ax sys em, in la ion
aises he sha e o he go e nmen 'sec o wi h he esul ing emp a ion
o inc ease go e nmen expendi u es. A hi d link is ha since one way
go e nmen expendi u es ha e isen is h ough in la iona y inance,
p e en ion o in la ion may indi ec ly limi go e nmen expendi u es.
Fou h, de ici expendi u es w hen inanced by newly c ea ed money,
as is so o en he case, end o be in la iona y.
A c i ic o mone a ism migh he e o e be emp ed o claim ha
mone a ism is basically an "ideological" doc ine; ha i consis s o
inding seemingly echnical easons o hide a basic commi men in a o
o un e e ed capi alism. Bu his emp a ion o play ama eu psycho-
analys should be i mly esis ed. A mone a is can eply o i e y
easily by e e sing he a gumen , and claiming ha he ideological
elemen in he déba e es s wi h he Keynesians; ha i is hei
ideological commi men o go e nmen egula ions and he g ow h o
bu eauc acy ha makes hem ejec he mone a is 's sound a gumen s
on a ious echnical issues o mone a y economics.
On a mo e wo hwhile le el han such name-calling i should be
no ed ha while opposi ion o go e nmen egula ions i s in well wi h
mone a ism, i is s ill a e y loose connec ion in one impo an sense82.
One can be a adical and ye accep all he o he mone a is p oposi-
ions discussed abo e. Thus, a adical migh e en accep he cons an
mone a y g ow h ule on he basis ha his is he bes one can do unde
capi alism83. In ac , a planne in an almos o ally con olled economy,
82 See ibid., p. 63.
83 A adical, unless he is Ma xis , need no ejec he mone a is 's belie in
he inhe en s abili y o he p i a e sec o since his objec ion o capi alism
could be ounded on g ounds o he han ins abili y.
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308 Thomas Maye
such as China, should ind he quan i y heo y mo e use ul han he
Keynesian heo y84. Con e sely, one can be a igh -wing ex emis
wi hou being a mone a is .
XIII. Some O he Di e ences
I one wan s o look o a common h ead connec ing a ious
mone a is p oposi ions one need no con ine onesel o an ideological
conside a ion since he e is a me hodological elemen a ailable.
We li e in a wo ld oo complex o ou in ellec ual appa a us. We
mus he e o e do ei he o wo hings. One is o ake accoun o a
g ea many ac o s a he cos o being able o see hei in e ela ions
only in a ague, clouded way. The o he is o simpli y d as ically, and
o look a only a ' ew ac o s. Along hese lines one can classi y
economis s in o "cloud make s" and in o "o e simpli' ie s", o use wo
de oga o y e ms. Using his dicho omy he Keynesian is a cloud make
while he mone a is is an o e simpli e 85. Thus he quan i y heo y is
simple han he Keynesian heo y in he sense o aking accoun o
ewe a iables86. The pic u e is less ob ious as a as he mone a is
ansmission p ocess is conce ned. The mone a is iew o his p ocess is
ce ainly mo e cloudy and less clea han he Keynesian one, since he
mone a is (belie es ha i wo ks h ough a la ge wumlbe o channels,
some o which he canno speci y. Howe e , a ague ansmission
84 The Keynesian's ma ginal e iciency o in es men and he mul iplie play
li le, o no, ole in de e mining income in a con olled economy. On he o he
hand, since he public has eedom o adjus i s money holdings he quan i y
heo y is ele an .
85 This does no imply ha he quan i y heo is hinks we li e in a simple
wo ld. One may wan o use simple models p ecisely because he wo ld is so
complex ha no complex, bu s ill manageable, model can do i jus ice. This
can be seen eadily on an empi ical le el. I we y o o ecas a a iable
which has de e minan s o only mode a e complexi y we end o use a s anda d
"explana o y" eg ession. Bu i we y o o ecas a a iable wi h ex emely
complex de e minan s we e a e mo e likely o use a nai e model o some o he
au o eg essi e scheme.
86 The B unne -Mel ze e sion o he quan i y heo y gi es he imp ession
o being mo e complex han he Keynesian heo y since i c i icizes Keynesian
heo y o igno ing some impo an e ec s. Bu his appea ance is due, in pa ,
o he ac ha when B unne and Mel ze c i icize he Keynesian model hey
ocus on he g ea ly o e simpli ied IS, LM diag am which does no gi e he
ull Keynesian s o y. Al hough hey in oduce some addi ional a iables, hey
omi some o he Keynesian a iables.
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The S uc u e o Mone a ism (II) 309
p ocess, when combined wi h F iedman's me hodological iews esul s
in a simple, a he han a complex, iaw o he wo ld. F iedman inds
a close ela ionship ibe ween changes in money and in nominal income,
and p esumably does no eel g ea ly wo ied by he ac ha i is di -
icul o speci y he ansmission p ocess87. He s esses p edic i e powe
a he han desc ip i e ealism88.
The mone a is 's 'hypo hesis ha he p i a e sec o is inhe en ly
s able also helps o simpli y he analysis, since, i ue, his means ha
we do no ha e o conce n ou sel es in mac oeconomics wi h luc ua-
ions in expendi u e mo i es. Hence, one can dispense wi h he de ailed
Keynesian analyses o consump ion and in es men , as well a>s many
complex business cycle heo ies. The mone a is 's disin e es in alloca i e
de ail ob iously also simpli ies mac oeconomics. The same
i>s
ue o his
use o small, a he han la ge, econome ic models, and o his oous
on he o e all p ice le el a he han on he p ices cha ged in indi idual
indus ies.
Using o al ese es a he han a combina ion o sho e m in e es
a es and money ma ke condi ions as an indica o o mone a y policy
helps o simpli y he analysis o mone a y policy. Indeed, mone a is s
ha e c i icized he use o money ma ke condi ions because o he
complexi y and agueness i in oduces89. The use o a s able money
g ow h a e also ob iously simpli ies he conduc o mone a y policy.
Indeed, one o he leading mone a is a gumen s o i is ha we do no
ha e he equi ed in o ma ion, such as knowledge o lags, o do be e
wi h disc e iona y policy han a simple g ow h a e ule does. And a
Phillips-cu e ha does no allow o any unemploymen -in la ion
ade-o simpli ies mac oeconomics by emo ing one e y di icul
87 To be su e, F iedman belie es ha he me e co ela ion o money and in-
come is no enough o es ablish he quan i y heo y, ha a plausible ansmis-
sion p ocess is needed. (See Mil on F iedman and Anna Schwa z, "Money and
Business Cycles", Re iew o Economics and S a is ics, Vol. XLV, Feb ua y
1963, Supplemen , p. 59.) Howe e , a ague, gene alized ske ch o he ans-
mission p ocess may su ice o his.
88 Ka l B unne oo, has ejec ed he ype o desc ip i e ealism ha es s
heo ies by e alua ing he alidi y o hei assump ions. (See his "Assump ions'
and he Cogni i e Quali y o Theo ies", Syn hese, Vol. 20, 1969, pp. 501 - 525.
89 See Ka l B unne and Allan Mel ze , Some Gene al Fea u es o he Fede al
Rese e's App oach o Policy, U.S. Cong ess, House, Commi ee on Banking
and Cu ency, Subcommi ee on Domes ic Finance, 88 h Cong ess, 2nd Session
(Washing on, D.C. 1964).
21 K edi und Kapi al 3/1975
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310 Thomas Maye
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The S uc u e o Mone a ism
(II) 311
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312 Thomas Maye
ques ion, selec ion o he op imal ade-o . Only wo componen s o
mone a ism, he use o a 'money s ock a ge , and he conce n abou
in la ion do no i he pic u e o mone a ism as simpli ica ion.
The e exis s also ano he elemen ha links six mone a is p oposi-
ions. This is he mone a is 's skep icism abou how muich we eally
know abou he sho un wo kings o he economy. Mone a is s
gene ally seem o be less op imis ic abou his han a e Keynesians. I
we eally do know li le abou he sho - un 'beha io o he economy,
hen he mone a is ansmission p ocess is less subjec o he c i icism
ha i -does no y o spell ou he channels o mone a y in luence in
any de ail. Any a emp o do his could hen be conside ed p esump-
uous. Second, i ou knowledge o sho - un economic beha io is
limi ed, hen we may no ha e an adequa e amewo k o (using in-
o ma ion abou alloca i e de ail. Thi d, we hen do no know enough
o ibuild use ul la ge 'scale econome ic models. Fou h, he less ou
knowledge, he weake is he case o " ine uning", and he s onge is
he case o a mone a y ule90, and hence he use o a money s ock
a ge . Finally, he less we know abou he economy he less likely a e
go e nmen egula ions o imp o e i .
XIV, Conclusion
This pape has deal wi ih a ious p oposi ions ha make up mone-
a ism, b oadly -de ined, and showed ha hey o m a cohe en whole.
Wi h one excep ion ( he use o a o al ese e measu e as he indica o
o mone a y policy) hey i oge he in he sense ha de ini i e p oo
o he alidi y o one o he mo e basic p oposi ions would inc ease he
plausibili y o some o he o he p oposi ions. Figu e 1 shows ela ions
which ha e been aced he e be ween he a ious p oposi ions.
Bu his does no mean ha mone a ism is a pa adigm which mus be
accep ed o ejec ed as a whole. As poin ed ou abo e, wi h he ex-
cep ion o he quan i y heo y i sel , and pe haps i s ansmission
p ocess, e e y single p oposi ion o mone a ism is one which a Keynes-
ian could accep while ejec ing o he s, and s ill main ain his adhe ence
o basic Keynesian heo y. In pa icula , he policy p oposi ions a e
90 This s a emen is subjec o he objec ion ha a g ea deal o knowledge
is equi ed o decide on he co ec long un g ow h a e ule. Bu mone a is s
belie e ha he economy can adap i sel o any mone a y g ow h a e as long
as his a e is s able.
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The S uc u e o Mone a ism (II) 313
eadily de achable om he heo e ical p oposi ions o mone a ism, and
can «be accep ed wi hou qualms by a Keynesian. Con e sely, someone
who accep s some o he mone a is p oposi ions, including he wo
mos basic ones ( he quan i y heo y an>d he mone a is e sion o he
ansmission p ocess) need no he e o e accep all he o he s.
Hence, a good case can 'be made o abolishing he e m "mone a ism"
al oge he , and o ea ing each p oposi ion independen ly. This would
educe he (un o una e pola iza ion o economis s in o mone a is s and
an i-mone a is s, wi h he accompanying endency o accep o ejec
a ious p oposi ions on a basis o he han he empi ical e idence
bea ing on hem91. Admi edly, his may well be he counsel o pe ec-
ion since he e m "mone a ism" is now so well es ablished and
con enien . Bu eclec icism is ully jus i ied92.
Zusammen assung
Die S uk u des Mone a ismus (II)
In dem Au sa z wi d die E ö e ung des Mone a ismus o gese z *, in dem
sechs Regeln ü eine mone a is ische Poli ik au geg i en we den: (1) De
Geb auch de Mindes ese en als ein Indika o ü die Geldpoli ik. (2) Die
Aus ich ung de Geldpoli ik au das Geld olumen als die geeigne e Ziel a i-
able. (3) De Glaube an die Regel om s abilen Wachs um de Geldmenge.
(4) Ablehnung eine Al e na i e zwischen In la ion und A bei slosigkei . (5)
G oße Beso gnis übe In la ion, und (6) Abneigung gegenübe s aa lichen Ein-
g i en. Es we den die Wechselbeziehungen diese Punk e und ih e Beziehung
zu den im e s en Teil des Au sa zes behandel en sechs Thesen e ö e . Ob-
wohl zumindes ün on ihnen eindeu ig mi ande en mone a is ischen Fo -
de ungen e bunden sind, kann man dennoch einige ane kennen und ande e
ablehnen.
* Siehe S. 190 .
01 As Cy us Go don (Riddles in His o y, New Yo k, 1974, p. 156) has pu
i , "all schools o hough a e in eali y 'schools o un- hough ' o he ex en
ha hey p e en us om going o whe e he ac s should lead us".
92 Thus Ka l B unne has a gued ha : "... he ou majo issues [in he
mone a is deba e] allow a a ie y o combina ions. ... The e olu ion o such
a spec um wi h a 'middle g ound' should en ich ou u u e esea ch ac i i ies.
Such ac i i ies should yield subs an i e esul s o e he yea s o he ex en ha
economis s success ully a oid he 'media p opensi y' o equa ing all issues wi h
ideological posi ions." "Commen a y on 'The S a e o he Mone a is Deba e' ",
Fede al Rese e Bank o S . Louis, Re iew, Vol. 55, Sep embe 1973, p. 14.
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314 Thomas Maye
Es wi d da geleg , daß die Wahl de Mindes ese en als Indika o ü die
Geldpoli ik nu eine nebensächliche Ve bindung mi allen ande en mone a is i-
schen Thesen ha . Alle dings sind ü ande e Punk e die gegensei igen Ve -
knüp ungen iel enge . So s eh beispielsweise die Benu zung de Geldmenge
als Ziel a iable de Geldpoli ik mi de Quan i ä s heo ie deswegen in enge
Ve bindung, weil die Quali ä s heo ie eben au die Geldmenge abziel und da-
on ausgeh , daß das Geld olumen genau gemessen we den kann — was
unbeding de Fall sein muß, wenn es als Ziel a iable benu z we den soll.
Ähnlich bes eh eine enge Ve bindung zwischen dem Leh sa z on de s abi-
len Wachs ums a e de Geldmenge und de Quan i ä s heo ie au g und de
Annahme, daß die Geldnach age s abil sei. Und dies wiede um is eine genau-
e e Umsch eibung de Geldmenge als Ziel a iable. Die Ablehnung de Al e -
na i e zwischen In la ion und A bei slosigkei paß gu zu Quan i ä s heo ie,
weil sich P eise und Geldmenge p opo ional en wickeln, wenn man die Phil-
/¿ps-Ku e in ealen G ößen ausd ück . Noch zahl eichen ande en Ve knüp-
ungen zwischen diesen Thesen wi d nachgegangen.
De Wide s and de Mone a is en gegen S aa seing i e en sp ich den mei-
s en ande en mone a is ischen Fo de ungen. Abe es wä e ein I um anzu-
nehmen, daß dies die G undlage des Mone a ismus wä e. Vielmeh dü en
eine Neigung zu Unkomplizie hei und Skepsis gegenübe unse e Kenn nis
de Zusammenhänge undamen ale sein.
Summa y
The S uc u e o Mone a ism (II)
This pape con inues he discussion"* o mone a ism by aking up six mone-
a is policy p oposi ions. They a e: (1) he use o a ese e measu e as an
indica o o mone a y policy, (2) he use o he money s ock as he p ope
a ge o mone a y policy, (3) belie in a s able money g ow h a e ule, (4)
ejec ion o an in la ion-unemploymen ade-o , (5) g ea conce n abou in-
la ion, and (6) dislike o go e nmen in e en ion. The in e ela ions o hese
p oposi ions and hei ela ions o he six p oposi ions aken up in Pa I o
his pape a e discussed. Al hough a leas i e o hem a e clea ly connec ed
wi h o he mone a is p oposi ions, he connec ion is again sudi ha one can
accep some, wi hou accep ing he o he s.
I is a gued ha use o a ese e measu e as an indica o o mone a y
policy has only a weak connec ion wi h all he o he mone a is p oposi ions.
Howe e , o he o he p oposi ions he in e connec ions a e much close . To
gi e some examples, he use o he money s ock as a a ge o mone a y policy
is connec ed o he quan i y heo y, since he quan i y heo y cen e s on he
* pp. 190.
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The S uc u e o Mone a ism (II) 315
money s ock, and also implies ha he money s ock can be measu ed p ope ly,
some hing ha is needed i i is o be used as a a ge . Simila ly, he s able
money g ow h a e is connec ed o he quan i y heo y by he belie ha he
demand o money is s able, and i is connec ed o he money s ock a ge since
i is a speci ica ion o ha a ge . The ejec ion o he in la ion-unemploymen
ade-o i s well wi h he quan i y heo y because, i he Phillips-cu e is in
eal e ms, p ices and he s ock o money mo e p opo iona ely. Nume ous
o he connec ions be ween hese p oposi ions a e aced.
The mone a is 's opposi ion o go e nmen in e e ence i s well wi h mos
o he mone a is p oposi ions. Bu i would be misleading o conside his o
be he basis o mone a ism. Ins ead, a p e e ence o simplici y, and skep icism
abou ou knowledge seem mo e basic.
Résumé
La s uc u e du moné a isme (II)
L'é ude du moné a isme se pou soui (I)* pa ce e Sec ion II, dans laquelle
in e iennen six ègles de poli ique moné a is e: (1) L'u ilisa ion des ése es
minimales comme indica eu de la poli ique moné ai e. (2) L'alignemen de
la poli ique moné ai e su le olume moné ai e considé é comme la a iable
inalisée app op iée. (3) La c oyance à la ègle de l'expansion s able du
olume moné ai e. (4) Reje de l'al e na i e en e l'in la ion e le chômage.
(5) Vi es inquié udes au suje de l'in la ion, e (6) an ipa hie à l'éga d des
in e en ions é a iques. L'on examine les appo s d'échange en e ces di e s
poin s e leu ela ion a ec les six hèses aisan l'obje de la Sec ion I de
l'é ude. E bien que cinq au moins de ces six hèses son clai emen liées à
d'au es exigences moné a is es, l'on peu cependan en accep e ce aines pou
en epousse d'au es.
L'au eu explique que le choix des ése es minimales comme indica eu de
la poli ique moné ai e n'a qu'une liaison secondai e a ec ou es les au es
hèses moné a is es. Mais pou d'au es poin s, les jonc ions son ne emen
plus é oi es. C'es ainsi pa exemple que l'emploi du olume moné ai e
comme a iable inalisée de la poli ique moné ai e se ou e en é oi e ela ion
a ec la héo ie quan ia i e du ai p écisémen que la héo ie quali a i e
s'o ien e su le olume moné ai e e qu'elle pos ule que ce olume peu ê e
mesu é ès exac emen — ce qui doi ce ainemen ê e le cas lo sque le
olume moné ai e se de a iable inalisée. Pa eillemen , il exis e une é oi e
ela ion en e la hèse du aux s able d'expansion du olume moné ai e e la
héo ie quan i a i e pou au an que la demande moné ai e demeu e s able.
E ceci cons i ue in e sémen une desc ip ion plus p écise du olume moné ai e
p. 190.
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DOI h ps://doi.o g/10.3790/ccm.8.3.293 | Gene a ed on 2023-01-16 13:32:12
316 Thomas Maye
comme a iable inalisée. Le eje de l'al e na i e en e l'in la ion e le
chômage s'adap e pa ai emen à la héo ie quan i a i e en aison du dé elop-
pemen p opo ionnel des p ix e du olume moné ai e lo squ'on exp ime la
cou be de Phillips en g andeu s éelles. De nomb eux au es liens en e ces
hèses son égalemen analysés.
L'opposi ion des moné a is es aux in e en ions é a iques co espond à la
plupa des au es exigences moné a is es. Mais ce se ai une e eu de c oi e
que c'es là le ondemen du moné a isme. Une endance à la simplici é e au
scep icisme à l'éga d de no e connaissance des in e connexions de ai au
con ai e ê e ondamen ale.
OPEN ACCESS | Licensed unde CC BY 4.0 | h ps://c ea i ecommons.o g/abou /cclicenses/
DOI h ps://doi.o g/10.3790/ccm.8.3.293 | Gene a ed on 2023-01-16 13:32:12