Laidler’s Monetarism

Abstract

To understand Laidler’s work as a whole, we need to put ourselves in his shoes, and imagine what it was like to enter the profession during the years of Keynesian hegemony, when all of macroeconomics was supposed to be summarized by the simple two-curve IS-LM model, itself presumed to be an aggregative version of the Walrasian general equilibrium model, and when econometric estimation of multiple-equation versions of this simple model was seen as the epitome of empirical work in the field. With modern economic theory to guide their thinking, and modern computers to help them tie theory to the data, it seemed to many economists entirely possible that the business cycle could be conquered by science.

From the point of view of the non-academic observer whose main concern was the conduct of economic policy, Monetarism involved first a theory of inflation, second a theory of the cycle, and third, as a corollary of these, a recommendation for the conduct of monetary policy. Specifically, inflation was said to be explicable in terms of the rate of growth of the money supply, and the cycle, or more precisely its turning points, in terms of changes in that rate of growth. (Laidler, 2004 [1990], 395)