Re: turn to monetarism query

[STEPHEN BLOCK <blocks@xxxxxxxxxxxxxxxxxxx>]

Perhaps I will add to my original query to further clarify what I'm looking
for and trying to get at.

In the early 1970's, there was a different policy shift concerning the
assessment of the major (cause(s) of inflation. Indeed there was one major
cause which ended up being isolated. It was wage-push inflation. Unionists,
of course, disputed the idea that their wage increases were exclusively or
largely to blame for inflation, but to no avail. Wage and price control,
both in the US and in Canada, where I reside, had largely, by 1972, become
wage control, again the assumption being that by controlling wages inflation
could be curbed. Wage and price control was generally unpopular, both for
labour and owners, was increasingly for labour which rightly saw itself as
being the primary target. A turn to monetary policy, to curb inflation,
avoided this trouble and it is my recollection that Nixon, in turning away
from wage and price controls began the long march toward the tacit
acceptance to the total acceptance of monetarism, which took place later in
the decade, by assuming that "belt tightening" would control inflation. For
the record, Germany and Canada had already gone that route, and in both
those cases it was in order to curb "spiraling inflation which was later
blamed on the inability of the Keynesian economic model to predict and
control inflation. To me that is why it is important to identify the early
markers of this change and although it is certainly true that Volcker
"announced a major change of policy", it did not occur in a vacuum and was
very much in the air for half a decade before his appointment. That's my
contention, exact Fed policies aside.

But my contention I would imagine is still open to other interpretations,
which was what I was looking for.

Many thanks,

Stephen Block


>
> L Randall Wray, in his book "Understanding Modern Money" wrote on
> page 101:
>
> "In 1972, the Fed adopted the money multiplier model and briefly
> tried to hit reserve targets as a way to allow it to hit M1
> targets.  The results foreshadowed those of the 1980s: the Fed
> proceeded to miss the reserve targets.    .....
>
> "In October 1979, the new Chairman, Paul Volcker, announced a
> major change of policy:  the Fed would use the growth rate of M1
> as its intermediate target and would allow the Fed funds rate to
> rise as high as necessary to allow achievement of this goal."
>
> William F Hummel
>
>> I'd be interested to see what some others have to say. Greider portrays the
>> situation as a decisive shift to monetary tightening with the appointment of
>> Volcker. Is this an accurate picture?
>>
>>
>> -----Original Message-----
>> From:    STEPHEN BLOCK [mailto:blocks@xxxxxxxxxxxxxxxxxxx]
>> Sent:    Fri 6/13/2003 5:54 PM
>> To:    Clifford Poirot; pkt@xxxxxxxxxxxxxxxx
>> Cc:
>> Subject:    Re: turn to monetarism query
>> Thanks Clifford. I've read that book. But I cannot entirely agree. Volcker,
>> from what I recall, for example, was Kissinger's idea. Aside from that, the
>> elimination of wage and price controls policy in favour of monetary
>> tightening it seems to me was the real beginning of it all, albeit the
>> precursor to what you have mentioned. But thanks again and perhaps others
>> would see it your way.
>>
>> Stephen
>>
>>
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>>
>> I do not think Nixon turned to monetarism. Read Bill Greider's "Secrets of
>> the Temple" for an account of the turn to monetarism in the US. He says it
>> came later in 1978 under Carter with the appointment of Volcker.
>>
>>
>> -----Original Message-----
>> From: STEPHEN BLOCK [mailto:blocks@xxxxxxxxxxxxxxxxxxx]
>> Sent: Wednesday, June 11, 2003 8:08 AM
>> To: pkt@xxxxxxxxxxxxxxxx
>> Subject: Re: turn to monetarism query
>>
>>
>>
>>
>>
>> In the early 70's, Nixon turned away from wage and price control in favour
>> of monetary solutions (to combat inflation). Can anyone cite any good
>> accounts of this? It can be within the broader context of the turn to
>> monetarism in the US and the UK, but my interest is on Nixon's doing this,
>> the possible motivations behind it and the effects these changes had on the
>> direction of economic policy. Obviously this is a large subject, but my
>> interest is really on the kinds of debates around this turn around that
>> time. But any other suggestions would be appreciated.
>>
>> Thanks
>>
>> Stephen
>>
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