Capitalist Crisis and the Rise of Monetarism

Abstract

What is the significance of 'monetarism' for an understanding of the relationship between the economy and the capitalist state? Before we can address the question we have to try to define 'monetarism'. In the strictest sense 'monetarism' refers to the advocacy of the quantity theory of money and a policy preoccupation with the growth of the money supply. In this sense monetarism expresses a pre-Keynesian orthodoxy, that has been perpetuated by a few cranks and that inexplicably grabbed the hearts and minds of economists and politicians for the best part of a decade, between 1975 and 1985. This is the view that has tended to be taken by economists who remain committed to a Keynesian analysis. For these economists monetarism was a combination of huckstering and collective madness that led to mistaken economic policies. The response to monetarism was to keep faith and wait until normal sanity was resumed. Such a view has apparently now been vindicated by the almost universal abandonment of this kind of monetarist orthodoxy, although elements of its rhetoric remain.