cal pieces inherited from past efforts in order to Two sources of the conflict have been recognized develop some specific hypotheses which do explain thus far. The Monetarists research strategy was con- portions of our observable environment. The New cerned quite directly with the construction of em- Viewers' obvious failure to recognize the limited con- pirical theories about the monetary system, whereas tent of their programmatic statements only contrib- the New View indulged, for a lengthy interval,in utes to maintenance of the conflict ery general programmatic excursions. Moreover, the New viewers apparently misconstrued their program A subtle difference appears, however, in the re- as being a meaningful theory about our observable search strategy. The New View was introduced essen tially as a generalized approach, including a quite third source of the persistent conflict ributed to a ronment. This logical formal exposition, but with little attempt at specific structuring and empirical content. The most impres- The latter source arises from the criticism ad sive statements propagated by the New View were dressed by the New Viewers to the Monetarists'the- crucially influenced by the sheer formalism of its ories of money supply processes. Three of the papers exposition. In the context of the New View's almost exploit the logically dubious but psychologically ef empty form, little remains to differentiate one object fective juxtaposition between a"New View"and a rom another. For instance, in case one only admits Traditional View. In doing this they fail to dis he occurrence of marginal costs and marginal yield uish between the inherited state of monetary associated with the actions of every household, firm, system analysis typically reflected by the money and financial intermediary, one will necessarily con- and banking textbook syndrome and sear clude that banks and non-bank financial intermedi- output of economists advocating the monetarist thesis aries are restricted in size by the same economic This distinction is quite fundamental forces and circumstances, In such a context there analogies misled the New Viewers and they did not is truly no essential difference between the deter- recognize the logical difference between detailed mination of bank and non-bank intermediary liabili- formulations of empirical theories on the one side ties,or between banks and non-bank intermediaries, and haphazard pieces of unfinished analysis on the or between money and other financial assets other side. 9 The strong impressions conveyed by the New View A related failure accompanies this logical hus result from the relative emptiness of the formu- There is not the slightest attempt to assess lation which has been used to elaborate their position. native hypothe theories by systematic exposure In the context of the formal world of the New to observations from the real world. It follows, there- View,"almost everything is almost like everything fore, that the countercritique scarcely analyzed the else". This undifferentiated state of affairs is not, how- empirical theories advanced by the Monetarist critique ever, a property of our observable world. It is only a property of the highly formal discussion designed book by Pesek and ealth and y the New View to overcome the unsatisfactor state of monetary analysis still prevailing in the late by Harry 1950s or early 1960s. 8 and bank As examples of the empirical work performed by the Mone- ADequate analysis of the medium of exchange function of tarists, the reader should consult the following works: Milton honey, or of the cor Frie thing else. "This analysis requires proper recognition that marginal cost of information concerning qualities and prop the assets involved. The analysis of the wealth position of Puzzles in u.s. monetar ivity of iney, requires recognition of the marginal produc- 6, Padova, Italy, Karl Brunner and Robert Crouch honey to the holder he relevant differences between of the New view s standard on hain nsult a preliminary approach to the analysis of the medmay program cannot cope with these issues lso consult for both issues the important August 17, 196 Page 12Wh.~ .. . ~ ., ~~z.atq~ ‘~ ‘~a~ cal pieces inherited from past efforts in order to develop some specific hypotheses which do explain portions of our observable environment. The New Viewers’ obvious failure to recognize the limited con￾tent of theft programmatic statements only contrib￾utes to maintenance of the conflict. A subtle difference appears, however, in the re￾search strategy. The New View was introduced essen￾tially as a generalized approach, including a quite formal exposition, but with little attempt at specific structuring and empirical content. The most impres￾sive statements propagated by the New View were crucially influenced by the sheer formalism of its exposition. In the context of the New View’s almost empty form, little remains to differentiate one object from another, For instance, in case one only admits the occurrence of marginal costs and marginal yields associated with the actions of every household, firm, and financial intermediary, one will necessarily con￾clude that banks and non-bank financial intermedi￾aries are restricted in size by the same economic forces and circumstances, In such a context there is truly no essential difference between the deter￾mination of bank and non-bank intermediary liabili￾ties, or between banks and non-bank intermediaries, or between money and other financial assets. The strong impressions conveyed by the New View thus result from the relative emptiness of the formu￾lation which has been used to elaborate their position. In the context of the formal world of the New View, “almost everything is almost like everything else”. This undifferentiated state of affairs is not, how￾ever, a property of our observable world. It is only a property of the highly formal discussion designed by the New View to overcome the unsatisfactory state of monetary analysis still prevailing in the late 1950’s or early 1960’s.8 8Adcquate analysis of the medium of exchange function of money, or of the conditions under which inside money be￾comes a component of wealth, was obstmcted by the pro￾grammatic state of the New View. The useful analysis of the medium-of-exchange function depends on a decisive rejec- tion of the assertion that “everything is almost like every￾thing else.” This analysis requires proper recognition that the marginal cost of information concerning qualities and prop￾erties of assets differs substantially between assets, and that the marginal cost of readjusting asset positions depends on the assets involved. The analysis of the wealth position of inside money requires recognition of the marginal produc￾tivity of inside money to the holder. Adequate attention to the relevant differences between various cost or yield functions associated with different assets or positions is required by both problems. The blandness of the New View’s standard program cannot cope with these issues. The reader may consult a preliminary approach to the analysis of the medium of exchange function in the paper by Karl Brunner and Allan H. Meltzer, in the Journal of Finance, 1964, listed in footnote 9. He should also consult for both issues the important Two sources of the conflict have been recognized thus far. The Monetarists’ research strategy was con￾cerned quite directly with the construction of em￾pirical theories about the monetary system, whereas the New View indulged, for a lengthy interval, in very general programmatic excursions. Moreover, the New Viewers apparently misconstrued their program as being a meaningful theory about our observable environment. This logical error contributed to a third source of the persistent conflict. The latter source arises from the criticism ad￾dressed by the New Viewers to the Monetarists’ the￾ories of money supply processes. Three of the papers exploit the logically dubious but psychologically ef￾fective juxtaposition between a “New View” and a “Traditional View.” In doing this they fail to dis￾tinguish between the inherited state of monetary system analysis typically reflected by the money and banking textbook syndrome and the research output of economists advocating the Monctarist thesis. This distinction is quite fundamental, Some formal analogies misled the New Viewers and they did not recognize the logical difference between detailed formulations of empirical theories on the one side and haphazard pieces of unfinished analysis on the other side.° A related failure accompanies this logical error. There is not the slightest attempt to assess alter￾native hypotheses or theories by systematic exposure to observations from the real world. It follows, there￾fore, that the countercritique scarcely analyzed the empirical theories advanced by the Monetarist critique book by Boris Pesek and Thomas Saving, Money, Wealth and Economic Theory, The Macmillan Company, New York, 1967, or the paper by Harry Johnson, “Inside Money, Outside Money, Income, Wealth and Welfare in Monetary Theory, to be published in The Journal of Money, Credit and Rank￾ing, December 1968. 9 As examples of the empirical work performed by the Mone￾tarists, the reader should consult the following works: Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the United States, 1867-1960, (Princeton: Princeton Uni￾versity Press, 1963). Philip Cagan, Determinants and Effects of Changes in the Stock of Money, (Columbia: Columbia University Press, 1965). Karl Brunner and Allan H. Meltzer, “Sonic Further Investigations of Demand and Supply Func￾tions for Money,” Journal of Finance, Volume XIX, May 1964. Karl l3runncr and Allan H. Meltzer, ‘A Credit-Market Theory of the Money Supply and an Explanation of Two Puzzles in U.S. Monetary Pohcy,” Essays in Honor of Marco Eanno, 1966, Padova, Italy. Karl Brunner and Robert Crouch, “Money Supply Theory and British Monetary Experience, Methods of Operations Research III — Essays in Honor of Wilhelm Krelle, ed. Rudolf Henn (Published in Meisenheim, Germany, by Anton Ham, 1966). Karl Brunner, “A Schema for the Supply Theory of Money,” International Economic Review, 1961. Karl Brunner and Allan H. Meltzer, “An Al￾ternative Approach to the Monetary Mechanism,” Subcom￾mittee on Domestic Finance, Committee on Banking and Currency, House of Representatives, August 17, 1964. Page 12