To judge from the financial and popular press, monetarism has been tried in the past ten years in the United States and Great Britain and has been found wanting. This judgment confuses monetarist theory with monetarist policy and central bank rhetoric with central bank practice. Far from discrediting the implications of monetarist theory, the events of the past few years simply add another dollop of confirmation to the overwhelming mass of prior evidence. The rhetoric of the monetary authorities has indeed been monetarist, but their policies have not been-or, to be generous, have been only partly so. The deviations in practice from monetarist policies have had the adverse consequences predicted by monetarist theory. Far from weakening the case for a monetarist policy, these consequences reinforce the case.
In developing these ideas, I shall summarize briefly what I take to be monetarist theory and monetarist policy, and then examine recent experience in the U.S.
Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.