Re: Zero debt and Monetary Policy

[GGard97342@xxxxxx]

In a message dated 09/02/2000 23:58:41 GMT Standard Time,
GN842@xxxxxxxxxxxxxxxxx writes:

> But I haven't the vaguest notion of UK monetary policy in the 1960s and
970s.

And, Gregory, you could be forgiven if you did not want to study it. It is a
very involved story, mostly of incompetence.

Charles A E Goodhart wrote two books about it, both published by Macmillan
(they publish under the St Martins Press label in the US). The first was
"Money, Information and Uncertainty" and the second  was "Monetary Theory and
Practice." They are not perfect, but as sources of information they are
useful as Goodhart was an insider. One thing the books prove to me is that
econometric studies of Sterling M3 cannot be anything other than a farcical
game.

Sterling M3 was recorded from 1948 to about 1990, and then totally abandoned
in favour of M4 which acknowledged that building society deposits, greater in
total than bank deposits, were important. I would have dozens of questions on
the methodology of gathering M3, and I wonder if any of them are answered in
the EJ article of 1992 which has been mentioned in a message. Odd that
someone should have been writing about M3 two years after it was dumped.

Looking at Goodhart's books again has reminded me that I forgot to mention
that for while there was a policy of "overfunding", and the excess funds were
invested by the BofE in bills. here is a little taste of what he writes:-

"So long as £M3 remained the cynosure of attention, and bank lending not
responsive to interest rates, the authorities felt that they had no
alternative except to continue along the over-funding ,bill mountain,
treadmill. Once the relationship between £M3 and nominal incomes was
recognised to be tenuous and unpredictable, so that less weight became placed
on achieving a target path for it, the first step the Chacellor took, even
before £M3 became officially and publicly downgraded as a monetary target in
his speech of 17 October 1985, was to abandon the policy of over-funding in
the cummer of 1985. "

In my own book I remarked, "His (Goodhart's) account provokes the irreverent
thought that many of those involved were trying to play a complex computer
game without realising that they had acquired the wrong instruction manual."

Geoffrey Gardiner