Money Supply Control in the U.K.

The British debate on money-supply theory contains several layers, all confused. In the wake of Keynes’s General Theory (1936), many economists, admittedly able to cite some extravagant GT language, maintained that money-supply was irrelevant to, say, price-performance because monetary velocity was infinitely malleable; prices, they argued, were determined by properties of wage-bargains and by the curve of investment expenditures; the level of nominal national expenditure thus becoming determined, velocity became a function of money-supply; the greater was money supply, the less would be monetary velocity. This view became predominant in the British Treasury and indeed has only quite recently lost force in Great George Street.