Why should it be that the perceptions of what constitutes monetarism, or what constitutes an appropriate monetary approach to policy, should differ so much between the USA and Britain? There are, I think, two groups of reasons for these differences. One stems, as Tim Congdon himself said, from the institutional background of the financing of the government budget in the two countries. Hansen, in an article in the American Economic Review in 1973, called attention to this. He contrasted what he called the US and European budget restraints on government. In the European case (of which Britain was one example whereas German and Holland were not of this type) the Treasury could use the central bank as its banker and so any deficit had an immediate impact on high-powered money and could later be funded as part of monetary policy. The impact effect, however, was a monetary one.
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