Monetarism or Prosperity? by Bryan Gould

By Bryan Gould

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The net impact on the price level could therefore be put at 29 per cent. In the next 45 months, under the orthodoxy of Healey, the money supply rose by 42 per cent, but the velocity increased by 45 per cent and GDP by only 3 per cent. The net impact on prices might therefore be put at 98 per cent. The absence of any evidence to support the basic proposition of the monetarist case is, on these figures, quite remarkable. The velocity of circulation is of course only a statistical relationshipin this case the ratio of Sterling M3 to the National Incomeand we must avoid falling into the same trap as the monetarists by assuming that either the money supply or its velocity tells us very much about credit; but the fact remains that the evidence in this and other countries does not support the claim that the level of prices is determined by the money supply in such a way that it would make economic sense to adopt a fixed monetary rule.

The absence of any evidence to support the basic proposition of the monetarist case is, on these figures, quite remarkable. The velocity of circulation is of course only a statistical relationshipin this case the ratio of Sterling M3 to the National Incomeand we must avoid falling into the same trap as the monetarists by assuming that either the money supply or its velocity tells us very much about credit; but the fact remains that the evidence in this and other countries does not support the claim that the level of prices is determined by the money supply in such a way that it would make economic sense to adopt a fixed monetary rule.

It is other countries which have benefited from the economies of scale which success in world markets makes possible. Mass production at a low rate of profitability per unit has resulted for them in a high level of profitability. This has created a renewed incentive and ability to invest in new technologies, to develop skilled workforces and new plant, and to make available sales and servicing facilities which in turn reinforce the ability to exploit growing world markets for massproduced goods.

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