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Essentially it was simple. The guru of monetarism, the Chicago economist Milton Friedmann, told us the answer to inflation was to stop printing so much money. The idea caught on. Friedmann himself won a Nobel Prize. Governments proclaimed that they had been converted to monetarism; Margaret Thatcher took to it like a revivalist preacher. She denounced the previous orthodoxy - Keynesianism - with the zeal of a Free Kirk minister inveighing against Rome.

Now nobody mentions the word. That might be, of course, because the medicine worked. Inflation is - it seems - a disease under control.

But there is another reason. Essentially monetarism might have been a simple doctrine, but there was, and is, one difficulty. How do you measure it? One definition had money being the total of notes and coins in circulation. This was even then inadequate, and now seems senseless, since most financial transactions of any size (except those in pubs and bars) are made without recourse to banknotes or coins of the realm. We now have electronic money, and what it represents, few really know.

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As well, Great Britain, the country most ardently devoted to monetarism in the 1980s, found that while inflation fell, unemployment zoomed up and output zigged and zagged.

In the USA, Paul Volcker used monetarism as a cover to induce the 1982 recession, but quietly abandoned it by 1983, and Reagan's cut-taxes-and-increase-spending doctrine was a weird variety of Keynesianism.

Canada today, however, is one of the last bastions of monetarist thought, living in the minds of people like John Crow, Gordon Thiessen and David Dodge.

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Two conclusions can be drawn from last week's spat between Gordon Brown and the European commission over fiscal policy. The first is that the stability and growth pact is in tatters. The second is that those who should be supporting the demise of this monetarist relic risk being on the wrong side of the argument.
The arguments used to defend the pact are not new. Sir Geoffrey Howe was fully acquainted with them when in the spring of 1981 he tightened fiscal policy during the depths of Britain's worst post-war recession.
This was monetarism's moment. Howe justified the budget squeeze by arguing that higher deficits would lead to an increase in the money supply. That, according to Milton Friedman's disciples, meant higher inflation. They hailed the chancellor's action as a wise move which yoked together the two central pillars of monetarism: controlling the money supply and balancing the budget. Growth started to pick up shortly afterwards. QED.

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