The Role of Money

Abstract

The analysis of the current inflation is fairly notable for the controversies which it has engendered, although it has been suggested that a meeting between two economists always produces three points of view! The greatest controversy of them all,¹ however, relates to the role played by money in the propagation of inflation. This is now referred to almost universally as the ‘money-supply controversy’. As we shall go on to see below, this controversy has its roots in neoclassical economics and also encompasses both Keynes’s own work and post-Keynesian writings. In order to avoid confusion it is convenient to group together those writers whose approach to the role of money has its foundations in The General Theory under the umbrella title of ‘Keynesians’ (or ‘neo-Keynesians’, or ‘post-Keynesians’), although it should be clearly understood that we cannot, by so doing, do proper justice to the full range of their ideas.² The strict Keynesian approach to the money-supply controversy can be summed up in the dictum ‘money does not matter’. For our purposes, however, the Keynesian view can more appropriately be expressed as ‘money is not all that matters’. The contrary view in this controversy is associated with a school of thought known as the ‘Monetarists’ or ‘New Quantity Theorists’, whose chief advocate is Professor Milton Friedman of the University of Chicago.