Rethinking the Monetarist Experience: Monetary Theory and Monetary Policy in the United States

In the history of monetary theory and monetary policy, there can be little doubt that the 1980’s are seen as a watershed. Following a disastrous decade of inflation and recession in the 1970’s, the monetarist ideas of Milton Friedman are largely seen to have triumphed then over the older Keynesian demand management policies. The moment of monetarism’s ascendancy is probably seen most often as 1979 – the year that Margaret Thatcher was first elected as Prime Minister of Britain, having run for office on an explicit platform of monetarist ideas, as well as the year that Paul Volcker was named chair of the Federal Reserve’s Board of Governors in the United States. The purpose of this essay is to focus on what happened in the United States after Volcker’s appointment as chair of the Federal Reserve.