Cheap money versus cheaper money

and misinterpretations of the intentions and arguments of my paper. With respect to the alleged deficiency in economic analysis, the article was intended to investigate the origins of Dalton's cheaper money policy by examining the advice he had received on monetary policy before or during I945-6, rather than to analyse or estimate empirically its effects on the British economy in the late I940s. The 'economic analysis' provided by Wood, namely the outline of the consequences of monetary expansion, was, I thought, accepted by all monetary economists nowadays. More importantly, it is this generally accepted analysis which provides the puzzle investigated in my article, namely why did Dalton adopt an inflationary monetary policy in an already inflationary situation? My account showed that some awareness of the inflationary risks of the policy existed and that the Chancellor of the Exchequer and his advisers relied upon price controls to repress inflation. I indicated the extent of the monetary expansion of I946 as the 'most immediate consequence' of Dalton's policy, but concluded that the extent of the resulting price inflation was difficult to measure, partly because of controls and partly because the monetary expansion was soon stopped. Turning to the reasons for the adoption of the cheaper money policy, they were more complex-and less naive, even if fundamentally misguided-than Wood appears to realize. One confusion that permeates Wood's comments is that between Dalton's reasons for a cheaper money policy and the official reasons (in the White Paper on Employment policy and in the first report of the National Debt Enquiry) for a postwar cheap money policy. There was a similar difference between Dalton's policy and the postwar monetary policy recommended by the Labour Party in its White Paper on Full--employment and financial policy adopted by the I944 party conference. I shall therefore provide some of the more detailed exposition of source material called for in Wood's comment. The two I944 documents advocated a continuation of the wartime monetary policy, involving a 3 per cent (nominal) rate of interest for long-term government bonds, for three (not two) reasons': to keep down the cost of reconstruction in the immediate postwar transition; to help to prevent unemployment after the transitional period, when the feared postwar slump came; and to reduce the budgetary burden of interest payments on the national debt. Wood points out that for the last of these low nominal rates of interest would suffice. (The fact that monetary expansion can only

Confusion · Economics · Exchequer · Inflation (cosmology · Keynesian economics · Macroeconomics · Monetarism · Monetary economics · Monetary policy · Political science · Politics · Economic Theory and Policy · Fiscal Policy and Economic Growth · Law · Psychology

• A Dear Money Man

  Susan Howson•The Economic Journal•1973

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• A comment on'The origins of cheaper money

  Open Access•Geoffrey E Wood•The Economic History Review•1989

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