will take a look at some evidence for the money of Empirical onjectures advanced without analytical jected by the Monetarist position, and an array supply view. It confines itself to examining the historical or en ubstantiation. Also, not a single pap relationship between monetary cycles and cycles the countercritique developed a relevant assess- in general business. The article concludes that ment of the Monetarists empirical theories or central the relationship between these two kinds of propositions cycles does not, in fact, provide any real support for the view that the behavior of money is the In sections B and c detailed examinations of predominant determinant of fluctuations in busi- specific conjectures ed on rival ex ness activity. Moreover, the historical relationship cyclical fluctuations of monetary growth are pre- between cycles in money and in business cannot sented. The direct on the monetarist position be used to demonstrate that monetary policy is, by Davis is discussed in some detail in Section D in its effects, so long delayed and so uncertain as This section also states the crucial propositions of to be an unsatisfactory countercyclical weapon. the Monetarist thesis in order to clarify some aspects An Examination of the Issues of this position. This reformulation reveals that the reservations assembled by Davis are quite innocuous A careful surv the countercritique yielded the They provide no analytical or empirical case against following results. The Gramley- Chase, Kareken, and the Monetarist thesis. Conjectures associated with the es- interpretation of monetary policy ( the " indicator tion the status of empirical theories used by the problem")are presented in Section E Monetarist critique in its examination of monetary policy. The Davis paper questions quite directly, on A. The New viet the other hand, the existence and relevance of the evidence in support of the Monetarist position, and The countercritique has apparently been decisively constitutes a direct assault on the Monetarist critique. influenced by programmatic elaborations originally The others constitute an indirect assault which at- published by Gurley-Shaw and James Tobin. 7 The tempts to devalue the critique's analysis, and thus to program is most faithfully reproduced by Cacy, and destroy its central propositions concerning the role it also shaped the arguments guiding the model of money and monetary policy construction Kareken and Gramley-Chase. The The indirect assault on the Monetarist position by New View, as a program, is a sensible resp Gramley-Chase, Kareken and Cacy requires a clari a highly unsatisfactory state of monetary analysis the nature of the New view inherited in the late 1950s, A money and banking a program of analysis must be clearly distinguished application of economic analysis to the financial sector. At most. this inherited literature contained onjectures 6 All three aspects are usually mixed only suggestive pieces of analysis. It lacked a mean gether in a general description. It is important to gful theory capable of ex responses understand, however, that neither research strategy the monetary system to policy actions or to in cations of the general program. The explicit separa- View proposed a systematic application of economic tion of the three aspects is crucial for a proper analysis, in particular an application of relative price assessment of the New view theory, to the array of financial intermediaries, their Section A examines some general characteristics of assets and liabilities the countercritique' s reliance on the New view. It shows the New View to consist of a program ac- This program is most admirable and incontestable but it cannot explain the confict revealed by critique ceptable to all economists, a research strategy re- and countercritique. The Monetarist approach ac tHese three aspects of the New View will subsequently be tion, this approach used the suggestions and andl. cepted the general principle of applying relative price theory to the analysis of monetary processes. In ac more fully. Their progran e application of relative price theory to analysis of financial John G. Gurley and Edward F. Shaw, Money in a Theory of growth and propositions about proper interpretation of policy udies, ed. Deane Carson Irwin, 1963) P~...t .. ...‘..~. .. ...., -. . will take a look at some evidence for the ‘money supply’ view... It confines itself to examining the historical relationship between monetary cycles and cycles in general business. The article concludes that the relationship between these two kinds of cycles does not, in fact, provide any real support for the view that the behavior of money is the predominant determinant of fluctuations in busi￾ness activity. Moreover, the historical relationship between cycles in money and in business cannot be used to demonstrate that monetary policy is, in its effects, so long delayed and so uncertain as to be an unsatisfactory countercyclical weapon.”5 An Examination of the Issues A careful survey of the countercritique yielded the following results. The Gramley-Chase, Kareken, and Cacy papers parade the New View in order to ques￾tion the status of empirical theories used by the Monetarist critique in its examination of monetary policy. The Davis paper questions quite directly, on the other hand, the existence and relevance of the evidence in support of the Monetarist position, and constitutes a direct assault on the Monetarist critique. The others constitute an indirect assault which at￾tempts to devalue the critique’s analysis, and thus to destroy its central propositions concerning the role of money and monetary policy. The indirect assault on the Monetarist position by Gramley-Chase, Kareken and Cacy requires a clari￾fication concerning the nature of the New View. A program of analysis must be clearly distinguished from a research strategy and an array of specific conjectures.6 All three aspects are usually mixed together in a general description. It is important to understand, however, that neither research strategy nor specific empirical conjectures are logical impli￾cations of the general program. The explicit separa￾tion of the three aspects is crucial for a proper assessment of the New View. Section A examines some general characteristics of the countercritique’s reliance on the New View. It shows the New View to consist of a program ac￾ceptable to all economists, a research strategy 5 Davis, pp. 63-64. °These three aspects of the New View will subsequently be elaborated more fully. Their program of analysis refers to the application of relative price theory to analysis of financial markets and financial institutions. Their research strategy refers to a decision to initiate analysis in the context of a most general framework. Their specific conjectures refer to propositions concerning the causes of fluctuation of monetary growth and propositions about proper interpretation of policy. jected by the Monetarist position, and an array of specific conjectures advanced without analytical or empirical substantiation. Also, not a single paper of the countercritique developed a relevant assess￾ment of the Monetarist’s empirical theories or central propositions. In sections B and C detailed examinations of specific conjectures centered on rival explanations of cyclical fluctuations of monetary growth are pre￾sented. The direct assault on the Monetarist position by Davis is discussed in some detail in Section D. This section also states the crucial propositions of the Monetarist thesis in order to clarify some aspects of this position. This refonnulation reveals that the reservations assembled by Davis are quite innocuous. They provide no analytical or empirical case against the Monetarist thesis. Conjectures associated with the interpretation of monetary policy (the “indicator problem”) are presented in Section E. A. The New View The countercritique has apparently been decisively influenced by programmatic elaborations originally published by Gurley-Shaw and James Tobin.7 The program is most faithfully reproduced by Cacy, and it also shaped the arguments guiding the model construction by Kareken and Gramley-Chase. The New View, as a program, is a sensible response to a highly unsatisfactory state of monetary analysis inherited in the late 1950’s. A money and banking syndrome perpetuated by textbooks obstructed the application of economic analysis to the financial sector. At most, this inherited literature contained only suggestive pieces of analysis. It lacked a mean￾ingful theory capable of explaining the responses of the monetary system to policy actions or to in￾fluences emanating from the real sector. The New View proposed a systematic application of economic analysis, in particular an application of relative price theory, to the array of financial intermediaries, their assets and liabilities. This program is most admirable and incontestable, but it cannot explain the conflict revealed by critique and countercritique. The Monetarist approach ac￾cepted the general principle of applying relative price theory to the analysis of monetary processes. In addi￾tion, this approach used the suggestions and analyti￾John C. Gurley and Edward F. Shaw, Money in a Theory of Finance, (Washington: Brookings Institute, 1960). James Tobin, “Commercial Banks as Creators of Money,” Ranking and Monetary Studies, ed. Deane Carson (II. D. Irwin, 1963). Page 11