Mehrling makes the following points:
1. Macroeconomists are more optimistic than before, in part due to the 1990s extended, low-inflation boom.
2. Monetary policy has replaced fiscal policy as the preferred instrument of stabilization.
3. The current consensus would look remarkably familiar to many of the pre-Keynesian monetary theorists, such as Ralph Hawtrey.
4. The more concerned we are with price stabilization, the more our economies take on properties of commodity money standards. Money is moving again toward the notion of a “promise to pay.”
Read the whole article for a stimulating treatment of further critical issues. If you would like a more technical and theoretical treatment, for macro nerds only, try Michael Woodford’s recent Interest and Prices: Foundations of a Theory of Monetary Policy. Fans of Wicksell (notice the title) and the conundrums of Fischer Black will enjoy Woodford’s work, which reexamines the central assumptions of monetary theory. Think of the book as the 21st century version of Don Patinkin’s Money, Interest, and Prices. And what are we told in practical terms? The price level is best controlled through interest rate policy.
Thanks to Daniel Davies for the pointer to Mehrling’s home page.