Price Stability and the Monetary Order

Abstract

William Stanley Jevons remarked that the study of money sometimes seemed to stand in the same position to economics as that of perpetual motion to physics, or squaring the circle to mathematics.¹ That was in 1875, but the capacity of monetary economists, not always from the fringes of the discipline, to generate extraordinary ideas did not diminish in the twentieth century. Whatever Keynes may have meant to tell his colleagues in the 1930s, by the 1960s his name had become associated with the idea that government stimulus to aggregate demand, accommodated by monetary expansion, could create a permanent increase in the economy’s level of output (and perhaps its rate of growth too), at a negligible cost in inflation, which was in any event largely a non-monetary phenomenon, and economically benign into the bargain. The world economy is still recovering from the great inflation which these ideas helped to create.