My TLS review of Tim Congdon and market monetarism

A version of my review can be found here.  Excerpts:

The economist Scott Sumner stated the case against fiscal policy another way on his blog The Money Illusion. Sumner noted that no one believes fiscal policy (unlike monetary policy) could be used to target a price inflation rate of say 4 per cent a year. The implication is that fiscal policy is not very effective in managing overall demand in an economy, so why should we so trust it as a tool of crisis management?

I still haven’t seen a good answer, or for that matter a bad answer, to that argument.  And:

Does the market monetarist movement hold all the answers? Not quite. It’s worth trying to keep the broader monetary aggregates at robust levels of growth, but what happens when this is not possible? The danger is not so much Keynes’s liquidity trap – considered a mythical beast by many, including this author – as the private sector’s reluctance to lend, such as followed the partial collapse of financial intermediation in 2008. Those credit relationships are being repaired only slowly, and so private investment will lag until trust is repaired. In the meantime, the authorities could prop up the monetary aggregates by printing more currency, but that’s not nearly as useful as trust-based expansions of bank lending and private investment. In other words, undoing the damage from a credit collapse is not always easy.

Read the whole thing.  You can buy Tim Congdon’s book here.  Here is my final take on the book itself:

Money in a Free Society doesn’t have all the answers, it is perhaps overlong, and it could have been more focused on remedies rather than devoting so much space to a long history of Keynesian thought in the United Kingdom. Nonetheless, it is a bracing and largely accurate take on what has gone wrong, a wake-up call for those who think they know all the right answers, and a medicine against the strands of political correctness that have been encircling and indeed strangling the macroeconomic debate.


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