Norman Macrae, Sound Money and the IEA

The late great Cambridge educated Norman Macrae, former Deputy Editor of The Economist reflected on the first 100 “Hobart Papers” published by The Institute of Economic Affairs.  Sound Money got his attention:

“About 40 of the first hundred Hobarts have been on macro-economic subjects. For me, the most convincing has been the most radical number 70, by the Nobel Prize -winner Professor F. A. Hayek, which advocated the Denationalization of Money. It is probably going to be recognised during the period of the second hundred Hobarts that inflation has been caused by one particular manifestation of the age of growth of government power, namely, the nationalisation during the 20th century of the production of money. Before 1914 the gold standard prevented officialdom from increasing the
money supply. Private profit-making bank s could and did create paper Credit, but the attraction of such paper money remained limited by the security of the issuing banks. Since 1918, governments have acquired the right to print money and do so when ever pressures are put on them such as (a) ‘print more money or there will be higher unemployment’, or (b) ‘print more money or trade union demands for higher wages cannot be met, and then there will be strikes’.
To many of us it once seemed ration al that governments should have the right to make such surrenders. But there have been two changes. First, the argument that it is sensible to allow inflation in order to keep down unemployment has lost its attraction as rich countries have decided that inflation is a main reason why they must continue to allow unemployment to remain high. Secondly it has become clear that, when
trade unions feel that governments will increase money supply in order to accommodate their demands, they will make higher demands. Everybody is intelligent enough to maximise his demands according to
the likelihood that those in power will give way to them. Argument s that wage demands are determined by any less logical reason (such as intensities of feeling about unfair distribution of income) are sociological guff.
Half-a-dozen of the Hobarts seem to me to have advocated the continuance of the main government monopoly over money supply, but with rules on stem targets about how much new money each central bank is permitted to create. The difficulties here are that any measures of money supply agreed as a target quickly become distorted because banks and governments then have an incentive to create money in some form just outside the reach of the target.”

We all miss the clear mind of Norman Macrae.  For several years he was a judge of Atlas’s Fisher Book Awards.

The IEA also had an “Occasional Paper” series, and number 33 was written in 1970 by Milton Friedman: “The Counter-Revolution in Monetary Theory” with a short introduction by Lionel Robbins.   Friedman ends the paper with this modest conclusion:  “A steady rate of monetary growth at a moderate level can provide a framework under which a country can have little inflation and much growth.  It will not produce perfect stability; it will not produce heaven on earth; but it can make an important contribution to a stable economic society.”