British and American monetarism compared

Abstract

The spread of monetarism in the 1970s did not occur by a simple process of intellectual conquest. In most countries monetarist ideas could not be incorporated in policy formation until they had adapted to local economic conditions and recognized existing traditions of monetary management. Although the framework of financial control assumed some monetarist characteristics in virtually all the industrial nations, each nation still retained distinctive institutional arrangements and policy approaches. The UK posed a particular problem. With its long history of monetary debate and practice, and with its unusually well-established institutional structures, it did not readily assimilate Chicago School doctrines. Nevertheless, in the late 1970s and early 1980s the media, leading politicians and the public at large believed that British macroeconomic policy was becoming progressively more monetarist. Perhaps the apex of monetarist influence on policy came in the Budget of 1980 with the announcement of the MediumTerm Financial Strategy, in which targets for both monetary growth and the budget deficit were stated for four years into the future. In a statement to regional city editors on 9 June 1980, Mr Nigel (later Lord) Lawson, Financial Secretary to the Treasury (later to be Chancellor of the Exchequer), said that the ‘Medium-Term Financial Strategy is essentially a monetary – or, if you like, monetarist – strategy’.