David Laidler: “Two Crises, Two Ideas and One Question”

The main founding fathers of monetarism to me always was Milton Friedman, Anna Schwartz, Karl Brunner, Allan Meltzer and David Laidler. The three first have all now passed away and Allan Meltzer to some extent seems to have abandoned monetarism. However, David Laidler is still going strong and maintains his monetarist views. David has just published a new and very interesting paper – “Two Crises, Two Ideas and One Question” – in which he compares the Great Depression and the Great Recession through the lens of history of economic thought.

David’s paper is interesting in a number of respects and any student of economic history and history of economic thought will find it useful to read the paper. I particularly find David’s discussion of the views of Allan Meltzer and other (former!?) monetarists interesting. David makes it clear that he think that they have given up on monetarism or as he express it in footnote 18:

“In this group, with which I would usually expect to find myself in agreement (about the Great Recession), I include, among others, Thomas Humphrey, Allan Meltzer, the late Anna Schwartz, and John Taylor, though the latter does not have quite the same track record as a monetarist as do the others.”

Said in another way David basically thinks that these economists have given up on monetarism. However, according to David monetarism is not dead as another other group of economists today continues to carry the monetarist torch – footnote 18 continues:

“Note that I self-consciously exclude such commentators as Timothy Congdon (2011), Robert Hetzel (2012) and that group of bloggers known as the “market monetarists”, which includes Lars Christensen, Scott Sumner, Nicholas Rowe …. – See Christensen (2011) for a survey of their work – from this list. These have all consistently advocated measures designed to increase money growth in recent years, and have sounded many themes similar to those explored here in theory work.”

I personally think it is a tremendous boost to the intellectual standing of Market Monetarism that no other than David Laidler in this way recognize the work of the Market Monetarists. Furthermore and again from a personal perspective when David recognizes Market Monetarist thinking in this way and further goes on to advocate monetary easing as a respond to the present crisis I must say that it confirms that we (the Market Monetarists) are right in our analysis of the crisis and helps my convince myself that I have not gone completely crazy. But read David’s paper – there is much more to it than praise of Market Monetarism.

PS This year it is exactly 30 years ago David’s book “Monetarist Perspectives” was published. I still would recommend the book to anybody interested in monetary theory. It had a profound impact on me when I first read it in the early 1990s, but I must say that when I reread it a couple of months ago I found myself in even more agreement with it than was the case 20 years ago.

Update: David Glasner also comments on Laidler’s paper.

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  1. Saturos

     /  September 9, 2012

    If we could only get Laidler and Woodford to simultanaeously accost Bernanke at a press conference… Now that would made headlines.

    Also, I saw your May interview with the Irish guy on YouTube! Excellent stuff. But I would recommend distancing oneself further from standard economist-speak. So instead of just saying that Irish debts would be more manageable with more European growth, clarify that you think what’s holding Europe back is a lack of growth in spending, in the flow of Euros. It’s only a short step from there to saying that it’s the ECB’s job to control the flow of Euros, and that firms and governments should not have to make irresponsible decisions purely because the ECB is unwilling to properly stabilize the flow of Euros through the European economy, which it has full control over. The flow, that is, not Europe (though that may change…)

  2. Great to hear Lars!

    This kind of recognition makes me feel a little less like the corner evangelist when I try and push MM views at work. I recently sent out your paper “Market Monetarism” along with Woodford’s to some PMs here. There are still many inroads to be made, but things are moving quickly!

    • Cthorm, Yes we are indeed making progress and remember in the 1970s nobody was listening to Milton Friedman, but as the problems with runaway inflation got bigger and bigger people started to listen to the monetary explanation. The same thing is happening now – the monetary explanation for the crisis is increasingly becoming recognized and increasingly NGDP targeting suddenly is not so insane.

  3. Thanks for pointing us to Laidler’s excellent paper; your habit of directing attention to such things is much appreciated 🙂

    • Thanks Lorenzo…David has done a lot of extremely interesting work over the past 4 decades and one can always learn a lot wrote reading is papers (and books).

  4. Tom Brown

     /  September 21, 2012

    Chris Whalen, from Institutional Risk Analytics, calls QE3 “socialist Keynesianism” in this piece:


    I disputed that, and provided a link to this blog. Any thoughts?


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