The New Cambridge and 'Monetarist' Criticisms of 'Conventional' Economic Policy-Making

Abstract

Over recent years there has been increasing criticism of what may be called 'conventional' economic policy-making The methods of forecasting and analysis used at the National Institute and elsewhere are at the centre of this type type of policy formation, and, although there have certainly been forecasting errors, the conclusion of this article is that nothing better has been proposed. This is certainly true of the New Cambridge view of the balance of payments which always had many theoretical difficulties, but which has now, it is demonstrated, also fallen down empirically. The school which is here labelled Monetarist is defined rather widely and probably includes somewhat divergent strains of thinking. They have in common however that they reject the cost-push explanation of inflation in favour of a monetary/excess demand theory. Attention is restricted to those who have commented on the UK situation. It is the central contention of this section of the article that the case is not proven by the sorts of 'evidence' which tend to be adduced. It is much more likely that the relatively painless monetarist cure for inflation is not a real option at all, but a mirage resulting from excessive concentration on statistical correlations of quarterly post-war data. A much broader view considers the important implications of the shift from the pre-war world to the 'full employment welfare state'.