Here are Allan Meltzer and Alan Reynolds, arguing for Monetarism and the gold standard, in 1982. I think it is an interesting exchange. You could say that things haven’t changed much since then. But, I don’t think that is true. Nobody really takes the Monetarism of that era seriously anymore. The Monetarists themselves had to give up all the fantasies of those days, and are now on what I call third-generation Monetarism, which is Nominal GDP Targeting.
There is a lot of talk about “rules-based” monetary policy these days. Central banks’ seat-of-the-pants ad-hoc improvisation makes everyone nervous. But, there’s a reason why things are done this way: all of the “rules” that academics think are going to work, tend to blow up in actual practice. This was also true of Monetarism, when Paul Volcker tried it in the early 1980s. He also had to go back to a seat-of-the-pants ad-hoc approach. Remember when Ben Bernanke was an “inflation targeting” fan? That went out the window too, in any sort of rigid implementation. Every major central bank these days has some kind of inflation target, so that is effectively just another name for today’s ad-hoc status quo. Meltzer here argues for a fixed rate of base money (or bank reserves) growth. This is nearly the same model as Bitcoin today, producing dizzying volatility. Stable growth of supply does not equal stable value. We’ve also seen this with many currencies, where base money is stable or growing at a stable rate, but the value of the currency falls out of bed. This was true in Thailand in 1997 or Russia more recently. It was true of Britain in 1931, and the U.S. in 1933 and 1971.
October 23, 2015: Russia’s Central Bank Might Be Getting A Clue After All October 16, 2014: Russia’s Currency Crisis: This Is So 2008! November 24, 2008: Russia’s Currency Crisis January 19, 2014: The Federal Reserve in the 1930s May 22, 2016: The Devaluation of the British Pound, September 21, 1931 Gold: the Monetary Polaris (contains many examples, including Thailand 1997) March 6, 2014: Bitcoin Proves Friedman’s Big Plan Was a Joke
Read “Towards A Stable Monetary Policy”
