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Two views of monetary policy: the Attwood-Mill debate revisited

  • Economics


Two Views of Monetary Policy: The Attwood-Mill Debate Revisited Thomas M. Humphrey are again in full en~plojwenf at ample mages. THOW% ATTWOOD (1819) Mr. Attwood opines, that the multiplication of the circulating p>zedEClizlm, and the consequent di- n&&ion of its value, do not wzerely ditninislz the pressure of taxes and debts, and other fixed charges, but give [email protected]+newt to labor, and fhaf to an indefinite extent . . . . Mr. Attwood’s error is that of supposing that a depreciation of the currency really increases the demand for all articles, and conseqztently their prodlrction, be- cause, zcnder sogme circumstances, it nzay create a false opinion of an increase of depnand; which false opinion leads, as tlze reality would do, to an increase oj production, followed, however, by a fatal revulsion as soon as the delusion ceases. JOHK STUART MILL (1833) Accompanying the current recovery, now well into its third year, is a heated debate over the role of monetary policy in restoring and maintaining eco- nomic stability. Two groups of participants dominate the debate, namely advocates of activist expansionary policies at one extreme and proponents of steady monetary growth at the other. The policy views of these competing groups have been conveniently sum- marized by Professor Karl Brunner [ 131. himself a member of the stable money group. According to Brunner, the activist group (1 j as- signs top priority to the speedy return to full em- ployment, (2) urges rapid mone! growth to help achieve that objective, (3) prescribes monetary fine- tuning to maintain full employment once it is reached, and (4) recommends acceptance of inherited infln- tion on the grounds that the cost of accepting it is far less than the cost of eradicating it. The stable money group, by contrast, (1) attaches top priority to the elimination of inflation on the grounds that price stability is an essential prerequisite for an effi- ciently functioning economy

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