The Structure of Monetarism (I)

The Structure of Monetarism (I) This paper has two purposes. One is to clarify the concept of monetarism by isolating its component propositions, and showing the connections between them. It argues that monetarism is not just an aggregation of more or less accidentally combined beliefs, but that it comprises a set of propositions that are connected with each other. The greater part of the paper consists of tracing these connections. The second purpose is to show that, although the monetarist propositions are connected, the connection is loose enough so that someone can accept some of them while rejecting others. Hence, the polarızation of economists into monetarists and Keynesians is unnecessary; there is adequate jJustification for eclectic positions. Six monetarist propositons are discussed here. They are: (1) the quantity theory, in the sense of the primacy of the monetary impulse in explaining money income, (2) the monetarist view of the transmission process, i.e. how money affects income, (3) a belief that the private sector is inherently stable, (4) a disinterest in allocative details, such as the availability of mortgage funds, or the demand for automobilies, (5) a research strategy that treats the price level as a unit, rather than as the resultant of individual prices, and (6) a preference for reduced-form econometric models. In the forthcoming second part of this paper, six other monetarists propositions bearing on policy are discussed. To illustrate by an example, the quantity theory is shown to be connected to the monetarist transmission process by the following links: (1) the money stock can be measured better than can the rate of interest, (2) money affects consumption as well as investment, (3) the demand for money is stable, and (4) the existence of significant relative price and stock effects