Comment on Mayer on Monetarism

Comment on Mayer on Monetarism Discussion of monetarism belongs to a recently passed era of U.S. policy debates and runs the danger of formalization. Of Mayer’s“ propositions, the crucial one is the assumption of a stable demand for money which differentiates monetarism from both Keynesian theory and the old quantity theory (unstable velocity) that Keynes attacked. Classical quantity theory went through two phases; the “neutrality of money” phase, designed to clear the way for real general equilibrium analysis; and “the conditions for money equilibrium analysis”, of disturbances to real and monetary equilibrium in a monetary economy. Prewar II theorists never regarded policy changes in money supply as a destabilizing factor, and treated expectational change in money demand as involving instability of velocity; to be offset by policy. Modern quantity theorists instead make policy a chief disturber of equilibrium, in the face of a stable demand for money