Re: turn to monetarism query

["Schulte-baeuminghaus" <schulte.baeuminghaus@xxxxxxxxx>]

The basic policy to "fight inflation" remained the same both before it was
called monetarism and after.
That basic policy was to use hikes in interest rates to reduce inflation.
This was exactly the contrary to what was required.
Especially in the circumstances of the 1970s and the 1980s, hikes in
interest rates did not curb inflation; on the contrary, they gave us what we
then came to call stagflation.
The evidence is too manifest to be seriously contested.
Inflation was eventually "curbed" by shifting its impact from rises in
domestic inflation to external currency deficits.
The massive current-account deficit of the United States today - somewhere
between $500 and $600 billion annually  - is a direct outcome of the
policies adopted to "fight inflation" through misconceived interest-rate
policy from the time of the first hike in interest rates in July 1969 and
the shift in the impact of those policies on to external trade and, inter
alia, the emergence of the Asian Tigers especially from the 1980s onwards.
The essence of what occurred was given, at a very early stage - 1971 - in my
book "The Indigent Rich: A Theory of General Equilibrium in a Keynesian
System" (Pergamon) and in such later books as "The Reconstruction of the
World Economy" (Longman Cheshire, 1984).



James Cumes
http://VictoryOverWant.org
http://crystaldreamspub.com/bios/authors/A-E/cumes_j.htm
----- Original Message -----
From: "STEPHEN BLOCK" <blocks@xxxxxxxxxxxxxxxxxxx>
To: "William F Hummel" <wfhummel@xxxxxxxxx>; <pkt@xxxxxxxxxxxxxxxx>
Sent: Saturday, June 14, 2003 9:45 PM
Subject: Re: turn to monetarism query


> 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
> >>
> >>
> >>
> >>
> >>
> >>
> >>
> >>
> >> 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
> >>
> >>
> >>
> >>
> >>
> >>
> >>
> >>
> >>
> >
> >
> >
>
>