Letters to the editor - Monetary policy, Best of Twitter - 25/06

Monetary policy

[Re: We face another crisis – listen to those who got it right last time, yesterday]

The editor is kind to notice that I “got it right last time”. He also credits some, but not all, other members of the Institute of Economic Affairs’ Shadow Monetary Policy Committee. We were indeed correct in warning in 2006 that the then stance of monetary policy was unsustainable and would lead to trouble. My concern was that the quantity of money was growing too rapidly. Obvious symptoms of monetary excess included rapid increases in house prices and the value of corporate equity, but there was also mild overheating in the labour market. I must disagree, however, with Heath’s praise for the Bank for International Settlements (BIS) and the Austrian school’s views on money. The latest BIS analyses ignore the quantity of money altogether and are anti-monetarist. With unemployment high across the advanced world, it is far too early to warn about asset price bubbles and rising inflation. Austrian economists today disdain commentary on specific monetary aggregates and even the notion of “monetary policy”. As ever, I favour steady and low growth of money: steady to maintain macroeconomic stability and low to limit inflation.

Professor Tim Congdon CBE, chief executive, International Monetary Research

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