Comment on the Paper by Professor Laidler

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The discussants, James Meade and Robin Matthews, have been generous, and I have no serious disagreements with them. Meade's taxonomy is ingenious and illuminating. I will take this opportunity to comment on David Laidler's position. He says, 'We are all monetarists now'. The sense in which that is true is pretty tame, a sense that would entitle many of us 'Keynesians' to say 'And we always were'. Laidler suggests that the touchstone is belief in stability of the money demand function, but such a function has always appeared in one of the equations of Keynesian theoretical and empirical models. It does not lead to monetarist policy propositions unless it takes particular form. I am sympathetic to the presumption that the behaviour represented in money demand functions is as stable as that embodied in many other structural equations of macroeconomics. That is different from asserting the stability of demand for any statistical time series labelled as 'money'. Given the changes in financial institutions, technologies, and regulations, many of them endogenous responses to market developments, it would be surprising if any monetary aggregate Mi, even though its label remains unchanged, means the same thing to its holders as it did Io or 20 or 50 years ago. Laidler does not rely on interest-inelasticity of demand for money, verticality of the 'LM' locus, as the basis for his monetarist views. Neither, ultimately, did Friedman. Laidler apparently accepts Friedman's dictum '...[No] "fundamental issues" in either monetary theory or monetary policy hinge on whether the estimated elasticity [of demand for money with respect to interest rates] can ... be approximated by zero or is better approximated byo 0i or 5 or 2,0, provided it is seldom capable of being approximated by co'.1 If monetarist propositions about the effects of monetary and fiscal policies on output and prices are at stake, the only reasonable way to make theoretical sense of this dictum is to take full employment, in the sense of cleared markets for labour and capital services, as the assumed state of the economy. But Laidler, explicitly shunning intellectual reinforcement from Monetarism II, does not take this way out. I think this leaves both Laidler and Friedman relying on empirical findings and practical judgements about how much money matters, how much other shocks and policies matter, how wise and timely policy-makers can be, how stable the economy is under constant policies, and so on. Maybe Laidler and Friedman think markets adjust to macro-economic shocks OPEC, for example faster than I think they would. Maybe from their perspective three or five 5 ears of stagflationary adjustment is quick enough so that theorists and policy-makers are best advised to regard equilibrium, the 'natural rate', as the normal state of the economy. In either case, the grounds for their monetarist policy recommendations are not the powerful theoretical propositions of