The Market and Money

Abstract

The Thatcher period began with perhaps the only laboratory experiment economists are ever likely to encounter. Monetarism, ‘red in tooth and claw’, was given its chance to convince a sceptical British economic fraternity. Except for a few followers at Manchester University, the London School of Economics and the Institute of Economic Affairs, there was little support for Monetarism. The government nailed its colours to the Monetarist mast whereby the control of inflation was related to the control of the money supply and targets for money supply growth were announced in advance as part of its medium-term financial strategy. Monetary targets had existed during the second half of the 1970s as a condition of the IMF letter of intent, but it is generally accepted that these targets were ineffective in the sense of an anti-inflation policy because they were set so as to validate the predicted rate of inflation. The principal method of inflation control in the 1970s was incomes policy.