Market monetarism?

In a recent post I complained that ‘quasi-monetarism’ was a horrible label and that we needed to change it.  I have considered ideas like ‘new monetarism’ and ‘post monetarism,’ but none of the alternatives seems satisfactory.  Now frequent commenter Lars Christensen has suggested ‘market monetarism.’  But he’s also done much more, he’s written an entire article on the quasi-, er market monetarist movement in the blogosphere.  It’s well worth reading for those who want an overview of the movement.  Marcus Nunes allowed Lars to do a guest post explaining his idea.

An economic school’s name naturally should represent the key views of the school. The Monetarist part is obvious as there is a very significant overlap with traditional monetarism. The difference between Market Monetarism and traditional monetarism, however, is the rejection of money supply targeting and the assumption about the stability of velocity is at the core of Market Monetarists’ reformulation of monetarism.

Instead of monetary aggregates and stability of velocity, Market Monetarists advocate the use of markets as an indicator of monetary disequilibrium. Furthermore, Market Monetarists advocate using market instruments such as NGDP futures – and in the case of William Woolsey Free Banking – as a tool to stabilise the policy objective (nominal GDP).

I am intrigued by this label, although I want to see what the other quasi-monetarists think before switching over.  As far as I can tell there are some subtle differences between the various quasi-monetarists in the blogosphere:

1.  David Beckworth, Nick Rowe, Bill Woolsey and Josh Hendrickson seem to focus a bit more on Yeager-style monetary disequilibrium models.

2.  Woolsey, David Glasner, Marcus Nunes and I focus on the need for NGDP future contracts (or perhaps wage contract in Glasner’s case.)  Beckworth recently mentioned the idea.

3.  Some of the quasi-monetarists may be a bit closer to old style monetarism than I am, whereas Glasner is probably a bit further way.  I’m not too sure exactly where Kantoos fits in.  I’ve been so busy I haven’t always kept up with the various blogs.

It’s not clear what the essence of quasi-monetarism actually is.  Nick Rowe doesn’t focus on US monetary policy quite as much as the rest of us (he’s in Canada), so I don’t know his precise policy views.  I think it’s fair to say the rest of us are all opposed to the Fed’s decision to allow NGDP to plunge sharply in 2009, and there seems to be general consensus that level targeting is the way to go.  We are all skeptical of interest rate targeting.  As far as using NGDP futures contracts, there seems to be varying degrees of enthusiasm.  It seems to me that the term ‘market’ is an implied critique of old-style monetarists like Anna Schwartz and Allan Meltzer, who have warned of the threat of inflation, even as both past movements in NGDP, and market forecasts of future gains, suggest money is too tight.  Indeed even though I am a big fan of Milton Friedman, I think one weakness of his approach was that he’d sometimes predict high inflation based on past money supply growth, even when market participants saw low inflation ahead.  Late in his life he endorsed Robert Hetzel’s proposal to have the Fed target TIPS spreads.

BTW, I’ve left out non-blogging quasi-monetarists, as it’s unclear where to draw the line.  I should add that even within the blogsphere it’s not obvious where to place various figures.  People like George Selgin share some of the perspectives of the quasi-monetarists.  In this respect quasi-monetarism is no different from the other “isms,” there are almost as many varieties as there are members.  And that’s good; we should never try to enforce ideological uniformity.

I’d like to see what other quasi-monetarists think before making any sort of name change.  But we can’t let Krugman label us any longer!

PS.  Josh Hendrickson has a new article in National Review.

Update:  I keep forgetting to include Niklas Blanchard, who is also a quasi (market?) monetarist.  Perhaps I forget because Karl Smith tends to dominate that blog.  It’s interesting how many of us there are—surely a sizeable fraction of all monetary economics bloggers.



52 Responses to “Market monetarism?”

  1. Gravatar of Lars Christensen Lars Christensen
    13. September 2011 at 11:44

    Scott, thanks. Lets just say I endorse the Market Monetarist label;-)

  2. Gravatar of AirmanSpryShark AirmanSpryShark
    13. September 2011 at 11:50


  3. Gravatar of marcus nunes marcus nunes
    13. September 2011 at 11:55

    For obvious reasons, so do I.

  4. Gravatar of Martin Martin
    13. September 2011 at 12:00

    I read the article by Lars and I think Market Monetarism is a good one. You do emphasize markets a lot when it comes to the stance of monetary policy, I think that that is the distinguishing feature.

    And I think it is good too as it deals with the problem of a stable/unstable V: the market response tells you something about both M and V as it [monetary policy] impacts future NGDP. This is simultaneously the greatest weakness, because as Lars indicated, there is not much econometric work on this and if you’re going to test this rigorously you’ll probably need to develop a good method.

    What I do see as a problem is MM or QM’s view of a balance sheet recession. Nick asked in his post what distinguishes Krugman from MM and I answered and believe that that is that MM does not focus on the distribution of debt.

  5. Gravatar of Morgan Warstler Morgan Warstler
    13. September 2011 at 12:01

    If you think through Friedman’s dream that a PC run the Fed:

    Its very much where Monetarism and Market Monetarism meet – you with income, him with quantity of money. But this is the win:

    “Milton Friedman: My computer set-up instead of the Fed would be for the long term purpose, and would eliminate all of this fine-tuning, we’d have none of this. We’d simply have the quantity of money go up regularly, day by day, week by week.”

    Make the Tea Party appeal to the conservative crowd with the name, it is all about dis-empowering the Fed.

    Secondarily, PROMISE crisis won’t happen again, don’t focus on the jobs thing, it sounds liberal.


    1. You won’t get a bunch of make up growth. It’ll start today.
    2. The rate will be 3 or 4%.

  6. Gravatar of Joe Joe
    13. September 2011 at 12:05

    Professor Sumner,

    I would argue there are two essential characteristics to quasi-monetarism.

    1. Theoretically, one way or the other, they look at the business cycle and macroeconomics in terms of the supple and demand for money.

    2. Empirically, they advocate some form of NGDP targeting.

    That’s all! All seven of you (Sumner, Beckworth, Hendrickson, Rowe, Woolsey, Glasner, Selgin) agree on THESE two points, but then disagree on many other things. But it is believing in THESE two points which distinguishes and sets you guys apart from everyone else.

    Concerning a label. It is the sad fact of human nature that we need to label every set of ideas or groups of people in order to “appreciate” them. Tyler Cowen is the exception. But we accept reality and deal with it. If you can get a great label, your ideas and “school” will move much faster from person to person. This is because it will be much easier for other non quasi-monetarists to bring up your ideas in conversation. Instead of saying “that group of guys with those weird ideas and strange name,” they will immediately have name for you which will make it easier to discuss you and mention you to others. Its like a corporation having a brand name. Every business would kill for one.

    In terms of the name, there is no contest here. You all MUST pick “New Monetarism” and refer to yourself as “New Monetarists.”

    Quasi monetarism is 1) ugly, 2) sounds unprofessional. Can you imagine Mankiw writing that label in a real academic paper?

    Market Monetarism is ugly, and that is very important!!! Aesthetics matter!

    Post Monetarist is not ugly, but 1) sounds to close to Post Keynesian, and you dont want anyone to think of them when discussing your ideas, and 2) sounds less beautiful than “New Monetarism”

    New Monetarism is absolutely positively perfect. Pick it.

  7. Gravatar of Ram Ram
    13. September 2011 at 12:12

    Seems to me like quasi-monetarism is about as similar to monetarism as it is to New Keynesianism (broadly understood), so I don’t think keeping “monetarism” in the title is necessary, though the centrality of forward-looking monetary policy to this approach is distinctive. How about charting a new course? How about “money futurism” or something artsy like that?

  8. Gravatar of StatsGuy StatsGuy
    13. September 2011 at 12:17

    Ah well, Nominalist loses. Unfortunately, Market Monetarist won’t stick – it’s too general. “So you’re a monetarist who believes in markets? A Marketist who believes in money?”

    Meanwhile, we have:

    Get this quote:

    “Noting gold has been “richly priced” in a number of currencies, Fisher says “we need to be the best in absolute terms, not just in relative terms.””

    Oh, that’s pretty. “we need to be the best”. And when he says we, he means the dollar. This is a sick, sick man. He’s jealous of Trichet, I suppose – now there was a REAL competitor, a man’s man.

    THIS MAN IS EVIL. His notion of virtue is a strong dollar, period, regardless of the underlying strength of the economy. From this perspective, there is no better position than being in a liquidity trap. That way, the dollar is truly safe.

    Yes, folks, we need to “be the best”.

  9. Gravatar of Lars Christensen Lars Christensen
    13. September 2011 at 12:25

    Nice to have set off such a debate about the name, but I suggest to everybody that they read the paper. I did not write the paper to come up with a new name, but rather to spread the word. I think the Market Monetarist bloggers really are revolutionary and there message is forming a new economic school. That is my message.

  10. Gravatar of Lars Christensen Lars Christensen
    13. September 2011 at 12:25

    …and naturally I would be happy to get feedback on the paper. You can write me at

  11. Gravatar of W. Peden W. Peden
    13. September 2011 at 12:27

    Here’s another reason not to use “monetarist”: it is absolutely perverse to call Glasner or Selgin monetarists. I like them both, but they’re not monetarists. However, I think Joe is right that they agree on those two premises.

    If it’s true that Selgin approves of “monetary equilibrialists”, then he’s got the nail on the head. It also accomodates those of us who’d prefer free banking to 2., if and when we can get it.

  12. Gravatar of Lars Christensen Lars Christensen
    13. September 2011 at 12:32

    W Peden, in the paper Glasner and Selgin are NOT called (Market) Monetarists, but I state that their views are very similar to that of the Market Monetarist bloggers. But I again, the name is not as important as what the message is and that is what I am trying to state in the paper.

  13. Gravatar of W. Peden W. Peden
    13. September 2011 at 12:37

    Lars Christensen,

    I wasn’t commenting on your paper (I haven’t read it yet) and I agree that their views are very similar to those ???s who very much are monetarists of some sort. What I think is that we need a term that covers the lot. “Monetary equilibrialists” ties together the concern that drives everyone who supports NGDP targeting, in various forms.

  14. Gravatar of cucaracha cucaracha
    13. September 2011 at 13:17

    My (humble) two cents:

    Discuss whether or not the crises arises from “excess demand for money” or “excess indebtedness”, as Henry Kaspar does, is a bit similar to argue about the “egg and chicken” problem.

    Kaspar is right when he puts monetary policy behind if one thinks about the classical monetary policy tools – simply because it would all end up in the exchange of “quasi-money” (“quasi-money” because the almost null interest rate and hence pratically complete interchangeability to money itself) for (again) money itself. That’s why (in this perspective) his stance for fiscal expansion makes sense – because in this case you indeed have an effective increase in broad money (“quasi-money” and money itself) and, at the same time, some direct stimulus is given to the economy (if you spend with people with higher propensity to consume, etc).

    And…Well… Krugman seems to understand (writing about it “sideways”) that there is a completely new monetary instrument available, one that could be used along with fiscal expansion… But he seems to mean that the only country where it could be implemented first is Japan. I mean: He sees it as something that could work but is not very confortable with the political consequences.

  15. Gravatar of Richard A. Richard A.
    13. September 2011 at 14:13

    Agora is Greek for market, so I guess you could also call market monetarism agora-monetarism.

  16. Gravatar of Contemplationist Contemplationist
    13. September 2011 at 14:16

    Market Monetarism is too long. I prefer Nominalism from StatsGuy.

  17. Gravatar of malavel malavel
    13. September 2011 at 14:20

    I don’t see market predictions as a key element of QM, but as an implementation detail. Isn’t the key element:

    Rational expectations of future monetary policy removes the long and variable lags.

    Do we really need anything else?

    NGDP level targeting is one way to shape the expectations. But that’s also just an implementation detail, like NGDP futures.

    New, neo, or post monetarism sounds best to me.

  18. Gravatar of Lord Lord
    13. September 2011 at 14:29

    Still somewhere close to Monetary Disequilbrium presumably.

  19. Gravatar of Jim Glass Jim Glass
    13. September 2011 at 14:39

    What’s wrong with “Neo-Monetarism”?

    “Neo” is a proven, short, successful label for the second iteration of all kinds of thought: Neo-Conservative, Neo-Liberal, Neo-Keynesian, etc.

    Is there something objecgtively wrong with it?

  20. Gravatar of david stinson david stinson
    13. September 2011 at 15:10

    ” It’s not clear what the essence of quasi-monetarism actually is.”

    It seems to me that the quasi-monetarists (QM) have reintroduced the notion that assessing the stance of monetary policy, and thus monetary equilibrium, requires a more nuanced consideration of the behaviour of money demand, as well as simply of the behaviour of the money supply. (Even though they’re not supposed to, most non-QM commentators are really focussing mostly on monetary aggregates). As a result, in the QM world, the “long and variable lags” of yore are not lags at all but are explained by the dynamics of money demand. Also, QMers don’t define monetary disequilibrium in terms of the general price level.

    Say, if quasi-monetarism is renamed market monetarism, I guess the appropriate acronym for a practitioner should be MMT’er (market monetary theorists)? [Evil grin]

  21. Gravatar of Andy Andy
    13. September 2011 at 15:30

    Saying it was born from the blogosphere doesn’t do it any favors — it sounds a bit crankish. Aren’t you trying to argue that the main concepts should really not be controversial to mainstream economists? (Krugman for example seems to agree with a lot of what you’re saying, but enjoys trying to make other people sound inferior to him)

  22. Gravatar of david stinson david stinson
    13. September 2011 at 15:35

    In terms of a name, I suppose one could argue that the QMs really have their foundation in Hayek’s view of monetary equilibrium. How about austro-monetarists? [another evil grin]

    Seriously, though, I like “nominalist” for you guys. The problem with “market monetarists”, if based on the notion that you advocate targeting market forecasts via market prices, is that it would sweep up people who like this:

  23. Gravatar of Scott Sumner Scott Sumner
    13. September 2011 at 15:40

    Lars and Marcus, That’s two votes.

    Airman, Nominalist won’t sell.

    Martin. That’s 3 votes.

    Morgan. Is that a yes?

    Joe, I tend to agree, but what about the fact that Stephen Williamson already uses that name for his blog?

    Ram, You said;

    “Seems to me like quasi-monetarism is about as similar to monetarism as it is to New Keynesianism (broadly understood), so I don’t think keeping “monetarism” in the title is necessary,”

    Of course new Keyensianism is 60% monetarism, so if it’s half and half then it’s 80% monetarism.

    Statsguy, Fisher seems proud that he’s not an economist.

    W. Peden, Good point.

    cucuracha, I’m not sure I understand your comment. What new instrument?

    Richard and Contemplationist, I don’t think those would sell.

    Malavel, Those are certainly all plausible possibilities.

    Lord, Yes, it’s close, although that box leaves out a lot of important factors.

    Jim Glass, Those are all possibilities.

    David, I thought of that, but of course MM would be enough.

  24. Gravatar of Lee Kelly Lee Kelly
    13. September 2011 at 15:40

    “Market monetarism” works for me.

    It can be extended to “Market Monetarism Theory,” and “MMT” for short … oh, wait.


  25. Gravatar of Scott Sumner Scott Sumner
    13. September 2011 at 15:42

    Andy, You’d think it is mainstream macro, so why did everyone “forget” it in 2008?

    David, Please no.

  26. Gravatar of Rob Rob
    13. September 2011 at 15:43

    I very much like the paper by Lars Christensen that explains very clearly the program of Market Monetarists.

    I do have a question that I hope someone can answer for me:

    The analysis in the paper identifies monetary disequilibrium as the main cause of the “great recession” – the demand for money is too high for the current money supply and price level. Based on this diagnosis an obvious policy for the central bank is be expand the money supply by buying up asset to get back to a position of equilibrium. I note however that the paper goes beyond this and calls for central bank to have the objective of “buy(ing) so much stuff that people don’t want to hold the money they temporarily accept in exchange”. Thus is it seems that the aim is not to find equilibrium but rather to go from a position of too much demand for money to too much supply.

    What is the thinking behind this ? Is there a danger that this policy of raising inflation expectation will at best lead to a mis-allocations of resources due to the surplus of money, and at worse risk stagflation as it causes prices to rise with no corresponding increase in investment (as nothing has been done to fix the reasons for low investments other than increasing the money supply)?

  27. Gravatar of Nick Rowe Nick Rowe
    13. September 2011 at 16:06

    I’ve no objections to “Market Monetarism”. Seems reasonable enough as a descriptive label (not that names can ever be very descriptive). Whatever you guys like.

    I don’t think we will ever escape the quasi-monetarist label though. Not that it bothers me. What’s that English regiment that proudly took on the name Kaiser Willhelm called it? The Old Contemptibles?

  28. Gravatar of Joe Joe
    13. September 2011 at 16:31

    Professor Sumner,

    You’re right.

    The only credible options are Neo and Post. You could put a poll on your blog, where people choose between Neo and Post. I would however, also speak to the other 6 guys to find out what they think is best. I’m just a fan.

  29. Gravatar of cucaracha cucaracha
    13. September 2011 at 16:40

    “cucuracha, I’m not sure I understand your comment. What new instrument?”

  30. Gravatar of cucaracha cucaracha
    13. September 2011 at 17:05

    Free link to Fukao’s work

    Another paper:

  31. Gravatar of MikeDC MikeDC
    13. September 2011 at 17:14

    * “Neo” is a four letter word after the neocons got a turn at the helm. Hell, I haven’t even heard neo-Keynesians refer to themselves as anything but “New Keynesians” in several years. You absolutely can’t go there.

    * I also think “Market” and “Monetarism” (regrettably) suffers from a similar stigma outside of pure economic circles and even within them to an extentu.

    * The quasi/Market Monetarist approach always reminds me of an economic application of Robin Hanson’s concept of futarchy (using futures markets and instruments to settle policy issues). Not that that’s very helpful.

  32. Gravatar of libfree libfree
    13. September 2011 at 17:32

    A) The name of your new philosophy is like your nickname, you don’t get to choose it.
    B) I’ve noticed on a handful of blogs and twitter, people referring to others as Sumnerian or anti Sumnerian. For better or worse you will be known by your followers long from now.

  33. Gravatar of My Twist on Market Monetarism « Increasing Marginal Utility My Twist on Market Monetarism « Increasing Marginal Utility
    13. September 2011 at 19:13

    […] macroeconomics blogs are a-thunder with what is perhaps the first school of macro born not of books or academic journals, but the […]

  34. Gravatar of johnleemk johnleemk
    13. September 2011 at 19:32

    Scott is too modest to propose or support it, but hell, Sumnerism it should be. If Scott had not started this blog, would there even be a quasi-monetarist movement to speak of? Maybe, but not terribly likely, and even if so, definitely nowhere as strong as it is now.

  35. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. September 2011 at 20:20

    I’ve lectured everyone on this in the past and I’m getting more than a little impatient with you all.

    IAll the prefix nonsense is frankly stupid. None of it will never catch.

    Money, however indirectly, impacts nominal GDP. The correct name for this particular point of view is Monetarism, pure and simple.

    I don’t intend to waste anymore time telling you what should be clear to you all.

    In the final analysis does anyone really waste time diatinguishing Neo, New or Old school Keynesianism? It all just Keynes, right?

    P.S. Scott, the mantle was passed from Friedman to you. Defend the title, and defend the current thinking and practice. You are a Monetarist and you are the current intellectual leader of Monetarism. Don’t wimp out.

  36. Gravatar of johnleemk johnleemk
    13. September 2011 at 20:31

    Yes Mark, Sumnerism is the new Friedmanism! I realise this could be taken sardonically but I am completely sincere. As Scott says in his FAQs (, “…like a broken clock the monetary cranks are right twice a century; 1933, and today. … Twice a century I put on my Irving Fisher super-hero suit, and emerge from my deep underground bunker.”

  37. Gravatar of Martin Martin
    13. September 2011 at 23:45


    “Nice to have set off such a debate about the name, but I suggest to everybody that they read the paper. I did not write the paper to come up with a new name, but rather to spread the word. I think the Market Monetarist bloggers really are revolutionary and there message is forming a new economic school. That is my message.”

    I think what is revolutionary is that it is a school from the blogosphere and that it are not people from the big name universities pushing this. They are however getting an increasing amount of attention in the mainstream media.

    I think what you need for your article is a good editor, content-wise it seems to me an accurate representation, but you could improve it a bit when it comes to structuring it. Although I am rather hesitant about the latter (structure) as it is a pleasant read and I can follow it quite well.

    On the other hand I’ve read Nick and Scott’s blog for a while and have started to read Beckworth a while ago. I am therefore not very sure that me saying that it is understandable is very helpful. I’ll have a closer look at it and see whether I can come up with some more specific points.

  38. Gravatar of Martin Martin
    13. September 2011 at 23:46

    It would be a shame if all your paper does is merely establish a name when it can also serve as an introduction to market monetarism.

  39. Gravatar of Lars Christensen Lars Christensen
    14. September 2011 at 03:18

    Martin, thanks for the kind words. The paper is basically a labour of love in the sense that I simply had to get it out of the system. But there a bits and pieces that I hope people will pick up and get inspired by. I for example try to give some directions on a possible research agenda for the Market Monetarists. I hope people will pick up on that.

    Furthermore, I hope that it will become part of a Primer on Market Monetarism – something to give to people and say “this is an introduction to Market Monetarism” – and maybe Mankiw will put it in his next textbook;-)

  40. Gravatar of MikeDC MikeDC
    14. September 2011 at 03:44

    Mark Sadowski – My reading of them makes me think I don’t know if Keynes would be a Keynesian were he alive today, but I think Friedman would be a Monetarist in exactly the sense you describe.

  41. Gravatar of Andy Harless Andy Harless
    14. September 2011 at 07:12

    Yuck, I don’t like the phrase “market monetarism.” The implication is that the modifier “market” somehow does not apply to the old monetarists (including remnants such as Anna Schwartz and Allan Meltzer), an implication I think they would rightly find insulting, since most of them were strong advocates of markets in general, even among economists. And I don’t think that a focus on markets is a distinguishing feature of the Sumner-Rowe school. One could completely deny the EMH and still be a quasi-monetarist — simply say that the Fed should make its own forecasts and target those (which, even if you do believe in the EMH, would be almost as good as using market forecasts, since the Fed’s forecasts are seldom dramatically different from the market’s and aren’t demonstrably worse in terms of performance). Indeed, given the quasi-monetarist focus on level targeting, it seems to me that forecasts are not even strictly necessary: one could advocate a purely reactive policy that would still be quasi-monetarist.

    One thing that does seem to unite the school is a belief in nominal rigidity: this distinguishes “quasi-monetarists” from “new monetarists.” And the other distinguishing feature, which separates quasi-monetarists from both new and old Keynesians, is a focus on money rather than interest rates. (From what I recall, though, Greg Mankiw’s seminal “new Keyensian” paper doesn’t mention interest rates either and might just as well form part of the microfoundations of quasi-monetarism.)

    I don’t know where to go from here. I’m going to keep saying “quasi-monetarist” unless “market monetarist” becomes clearly the accepted term, or unless someone comes up with a better idea (as I am hopeful that someone will). I’ll throw out “sticky new monetarist,” but I don’t think it’s going to stick.

  42. Gravatar of flow5 flow5
    14. September 2011 at 08:31

    Friedman’s no monetarist. He advocated paying interest on reserves (to pay the banks not to lend) & that reserves were a “tax”. Any student of fractional reserve banking knows that reserves aren’t a “tax”. The label monetarism (the Chicago tradition), started before he got his Ph.D. at Chicago.


    A. didn’t know the difference between the supply of money and the supply of loan funds.

    B. didn’t know the difference between means-of-payment money and liquid assets.

    C. didn’t know the difference between financial intermediaries and money creating institutions.

    D. didn’t recognize aggregate monetary demand is measured by the monetary flows (MVt) not nominal GDP.

  43. Gravatar of Lars Christensen Lars Christensen
    14. September 2011 at 11:00

    Andy, just to get 100% clear. The Market Monetarist term is certainly not meant as a insult of traditional monetarists like Anna Schwartz and Allan Meltzer. However, in regard to both I must acknowledged that I have been very disappointed that they both seems to have turn quite Austrian – at least in their view of the Great Recession.

    By the way the Sumner-Rowe school is not stupid, but I guess that would leave out Woolsey, Beckworth, Hendrickson etc.

    Anyway, I want to once again stress that I my paper is not primarily about a name, but rather about what I think Market Monetarism is about.

  44. Gravatar of Lars Christensen Lars Christensen
    14. September 2011 at 11:43

    Flow5, just to get the fact right – the term “monetarism” was coined long after Friedman received his Ph.D.

    By the way Friedman attained his Ph.D. from Columbia and not from Chicago.

  45. Gravatar of flow5 flow5
    14. September 2011 at 12:21

    Right, Friedman was in Chicago getting his masters in 33 but ran out of money & couldn’t finish – that’s why he ended up in Columbia.

    The term monetarism according to Wikipedia “is a tendency in economic thought that emphasizes the role of governments in controlling the amount of money in circulation”

    Trivial points. Milton was loath to grant central bankers much discretion in formulating and executing monetary policy. But Economist magazine “described him as “the most influential economist of the second half of the 20th century…possibly of all of it.” Thus we can blame Milton Friedman’s laissez-faire policies for our current problems.

    (1) Friedman’s definition of the “money” supply to target kept changing. Actually, money is the measure of liquidity, the “yardstick” by which the liquidity of all other assets is measured.
    (2) the “monetary base” is not a base for the expansion of the money supply.
    (3) the “multiplier” is not derived from “the monetary base”.
    (4) aggregate demand is measured by monetary flows (MVt), i.e., income velocity is a contrived figure (see WSJ, Sept. 1, 1983)
    (5) the rates of change used by the Friedman were specious.
    6)Friedman (1959) advocated the payment of interest on reserves at a market rate in order to eliminate the distortions associated with the tax on reserves

    No, Milton Friedman didn’t represent monetarism.

  46. Gravatar of Scott Sumner Scott Sumner
    14. September 2011 at 16:11

    Rob, I’m not the best person to ask, because I don’t use the money disequilibrium model the others use. I think they’d say they want an equilibrium consistent with on-target NGDP. Right now the money market has reached an equilibrium (after earlier being in disequilibrium) but at too low a level for NGDP.

    Thanks Nick and Joe.

    Cucaracha, That guy’s wrong about Japan. The BOJ didn’t fail, they tightened monetary policy in 2000 and 2006, showing the sluggish NGDP growth is exactly what they want. They could generate inflation simply by devaluing the yen, there’s no need for taxes on currency.

    MikeDC, It’s definitely very Hansonian.

    libfree, I’ve never even liked my own name. I much prefer my middle name (Baker.)

    Thanks Johnleemk.

    Mark, You make a powerful argument for monetarism. But I just lectured Krugman not to confuse monetarism with quasi-monetarism. Now I have to tell him they are the same? That would be awkward.

    Martin, I agree that an editor would help in a few places. Of course Lars is from a non-English speaking country, so maybe some of us could give him a few tips on grammar.

    Andy, You said;

    “Yuck, I don’t like the phrase “market monetarism.” The implication is that the modifier “market” somehow does not apply to the old monetarists (including remnants such as Anna Schwartz and Allan Meltzer), an implication I think they would rightly find insulting, since most of them were strong advocates of markets in general, even among economists.”

    I have argued that traditional monetarism violates the EMH. There should be no long and variable lags between monetary policy and asset markets. Asset prices should respond immediately. But all the old monetarists write as if they don’t. Even the great Milton Friedman.

    I think your other comments are very perceptive. But I must say the odds of “sticky new-monetarist” winning out are on the order of .000000000000001. 🙂

    flow5, Friedman is plenty monetarist, even if he disagrees with you on a few issues. All labels need to be flexible. There is no perfect Keynesian either–not even Keynes.

  47. Gravatar of Rob Rob
    14. September 2011 at 17:42


    Thanks for the answer on my “Monetary Disequilibrium” question. It sounds like equilibrium is defined as the level of money supply that will bring NGDP to target. Assuming that the NGDP target is hit it sounds like it will result in a combination of inflation and growth in RGDP. The amount of RGDP growth will depend upon the amount of extra investment encouraged by the increased money supply.

    My follow up question is: What factors beyond expectation of increased inflation (higher prices for goods sold, or lower real wages if wage-inflation is lower than general inflation etc) will drive the increase in investment following the expansion in money supply to reach the NGDP target ?

  48. Gravatar of Morgan Warstler Morgan Warstler
    14. September 2011 at 18:35

    As I have said before, and will say again, Scott will never get Friedman’s rep, until the first thing you know about Sumner is that he hated Government.

    You all can’t / don’t want this to be true, because you are conflicted, many of you secretly believe that Sumner’s ideas might somehow save Big Society.

    And he won’t force you to let go of that hope.

    There are 1000+ other people who have any given idea, maybe 100 who pursue it past a glance, and 1 who goes the distance.

    Friedman went the distance. He threw red meat to the right in virtually everything he did or said.

    Friedman would never make it sound like he and DeKrugman have more than lucks chance of agreeing on anything.

    Monetary doesn’t get to work under any political regime.

    Monetary must serve the same master as government.

    It ain’t the “people.” It is the folks who formed, run, and fund the system.

    Denying the reality of this is madness.

    This isn’t about tilting at windmills, this is about getting your NGDP level targeted as fast as possible.

    Q: Who doesn’t read and study the mountain, when they set out on a climb?

    A: Forgotten frozen dead idiots.

  49. Gravatar of Scott Sumner Scott Sumner
    15. September 2011 at 18:50

    Rob, It’s expectation of higher NGDP growth, not expectation of higher inflation, that drives investment.

  50. Gravatar of Rob Rob
    15. September 2011 at 21:40

    Thanks Scott, I read a bunch of your previous posts and asked a similar question on Bill Woolsey’s site and I think I get it now.

    BTW: This is great blog with literally hundreds of insightful entries. However even with Lars’ paper you have to work quite quite hard to work out what its all about.

    IMHO: Assuming you want to attract non-economists (like me) to support this program you need to a link on your home page that lays out the basics and points to the most important of your (and the other quasi-monetarist bloggers) posts that explain the background, theory and program a bit more clearly.

    The Mises Institute does a great job of promoting Austrian ideas. You guys need something similar that promotes your vision. How about a Milton Friedman Institute ?

  51. Gravatar of Scott Sumner Scott Sumner
    17. September 2011 at 09:40

    Rob, That’s a good idea, I plan to do a post soon which provides links to various market monetarist ideas.

  52. Gravatar of offerte mutui offerte mutui
    5. October 2011 at 04:37

    guida mutui…

    […]TheMoneyIllusion » Market monetarism?[…]…

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