Tim Congdon, British economist, a CBE, fellow Oxford-educated(!) intellectual, runs IIMR, a British monetarist research institute, published on money and growth in monetary aggregate like crazy since forever but definitely since the pandemic.

Has a stupidly titled book out , The Quantity Theory of Money: A New Restatement

If you gotta restate an old position, and then make a new version of that you should, uh, probably just make up a new(!) brand entirely. But yes, Covid changed everything so here we are.

In this long read for Project Syndicate from a few weeks back, Congdon riffs off the Jackson Hole central banker gathering: fintech and global payment system while the most important themes are money (shocking for monetary authorities, I know) and “the economic effects of changes in the money supply.”

TL;DR for the piece: (also low-key historical recap in video format):

Friedman [archbishop of monetarism] was wrong in the mid-1980s because he based his forecasts on M1, and Chicago-trained monetarists were wrong in 2009–10 because they relied on the monetary base and M1 when warning of imminent inflation and currency debasement. For all its shortcomings, broad-money monetarism fared well during the inflationary surge of the 2020s, as both its peak and eventual soft landing in 2022 were strongly correlated with shifts in broad-money growth.

That was not the case at the first symposium (then hosted in Kansas City) in 1978. Monetarism dominated discussions then and with good reason: inflation was rampant, and Margaret Thatcher was making monetary policy the centerpiece of the campaign that would carry her to 10 Downing Street the following spring.

“For economists who continue to believe that the money supply matters, its near-total absence from the Jackson Hole agenda amounts to something close to policy malfeasance.”

Dude — and common sense — has a bit of a victory lap here

consumer-price inflation approached or exceeded 10% in most advanced economies at some point during 2022–23. Yet the inflation surge of the early 2020s—which caught most professional economists by surprise—has done little to prompt a reconsideration of the now reflexive dismissal of monetarism.

Instead, the experts dismissed monetarism… even claiming at times that weaker demand during COVID pandemic would make prices fall.

Only a handful of economists noticed the rapid growth of the money supply during the spring and summer of 2020, warning that, after the usual lag, inflation would rise sharply.

Yeah, we know. It was astonishing to see, really.

I am widely—and, I believe, correctly—described as a monetarist because of my long-standing interest in the relationship between money and inflation

Since the turn of the century, monetarism has fallen so completely out of fashion that it has virtually disappeared from both academia and the institutions that shape economic policymaking, especially central banks

Again, that’s fucking shocking… both to lay people and to those of us on the outside thinking, common-sensically, that money ought to be important for monetary policy and central banking. Uh-hu.

Speaking of Friedman’s influence today #1565151, we get this:

Friedman was a formidable off-the-cuff debater and an exceptionally influential scholar. Such was his authority that, over a career spanning the second half of the 20th century, he came to define the meaning of monetarism in both academia and policymaking.

TWO unfortunate consequences:

1. His political/libertarian/philosophical ideas tainted the monetarism: portrayed and thought of as a “right-winger,” e.g., in the subtitle of Jennifer Burns' recent biography, The Last Conservative

   As a result, many people hostile to conservatism associated monetarism with politicians and political causes that had little or nothing to do with monetary theory. Friedman was lambasted because economists trained at the University of Chicago advised the Chilean dictator Augusto Pinochet, while monetarism was stigmatized in some circles for its association with the social and economic policies of Margaret Thatcher in the United Kingdom and Ronald Reagan in the US.

2. Mixed results in commenting on contemporary development: e.g., forecasting errors in the 1980s about restricting money supply growth and consequences on unemployment

   because he was an active participant in public policy debates, he also made countless recommendations and predictions about social, political, and economic issues. Many were controversial, and some proved wrong.
   In a February 1983 column for Newsweek, he warned that faster M1 growth would lead to a “renewed acceleration of inflation.”
   In fact, the opposite occurred.

Volcker’s temporary embrace of monetarism may well have been crucial to defeating inflation, but Friedman’s forecasting error gave them the evidence they needed to dismiss monetarism as pseudoscience.

Replay of that after the GFC, with many monetarist-leaning economists and Chicago-trained peeps howling inflation disaster after central banks expanding balance sheets in response to the 2008 (and eurozone, 2011-12) troubles… instead, a decade of below-inflation target CPI followed, with experts in pointy hats doing “whatever they could” to make annual price increases stay above 0%.

By the 1990s, central banks had abandoned money-growth targets in favor of inflation targeting, pursued primarily through interest-rate adjustments. In effect, the money supply was no longer at the center of mainstream monetary policy.

This is just honestly insane to consider:

They probably saw the money growth and balance sheet expansion numbers, but then waived them away with strong and entrenched intellectual blinders:

In my book, I argue that the rise of interest-rate-only macroeconomics was a major reason for the forecasting failures of the early 2020s. Today’s dominant school of thought—New Keynesianism—is built around a three-equation model in which aggregate demand depends on the central bank’s policy interest rate.

“Often described as the “workhorse” of central-bank economics departments, this framework has damaged macroeconomic analysis and outcomes in the 21st century.”

100%. Absolute trash.

Kevin Warsh to the Beautiful Rescue

I’m not as confident about this as Mr. Congdon, but we shall see.

Since becoming chair in May, Kevin Warsh has brought the money supply back into the monetary-policy debate. The Fed’s latest semiannual Monetary Policy Report discussed money growth for the first time in more than a decade, reflecting Warsh’s willingness to revisit ideas long neglected by central bankers.

Before Congress earlier this year, Warsh

denied being a monetarist but admitted that he was old-fashioned enough to believe that “monetary policy has something to do with money.”

Alrightsy.

"the Fed’s response to the inflation wave of the 2020s is probably more representative of the economics profession than Warsh’s renewed interest in a money-based approach to macroeconomics."

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