Year:    1988

Author:    Ehrlicher, Werner

Credit and Capital Markets – Kredit und Kapital, Vol. 21 (1988), Iss. 2 : pp. 163–181

Abstract

Monetary, Financial and Income Policy in a National Economic Policy Framework

The author discusses the divergency over the basically operations theory-oriented economic policy, especially of monetary, financial and incomes policy, after World War II. In the first part of his paper he describes the theoretical controversies over neoclassicism/neo-Keynesianism, monetarism/fiscalism and supply-side/demand-side management policies. He uses various problem definition, steering mechanism and determination criteria to characterize the controversial positions of the neo-classics and the neo-Keynesians. In the debate on monetarism versus fiscalism he stresses the different definitions of the value of money, of interest and employment. In the discussion on supply-side versus demand-side management policies he underlines the differing attitudes to government activity, diverging target priorities and the trust/distrust in the basic stability of economic processes.

The second part presents the economic policy concepts reflecting this controversy in monetary, financial and incomes policy since 1948. The period under review is subdivided into three parts by the two recessions in 1966/67 and 1974/75. The first subperiod is referred to as a period of continuing strong economic growth. Monetary policy pursues a Keynesian anti-cyclical, financial policy a neo-classical concept aiming for varying economic policy goals, while incomes policy has a primarily microeconomic orientation. The second sub-period is characterized by reduced growth and rising inflation; it begins with the adoption of the Act on Economic Stability and Growth designed to allow a consistent Keynesian monetary, financial and incomes policy. However, this concept is consistently applied during a short period only; abrupt changes of policy direction and the inappropriate use of policy instruments expedite the speed of inflation. Contrary to the markedly short-term policy-orientation in this period a longer-term approach commences to hold its own after the 1974/75 recession in all three policy areas that began with monetary policy; it is noticeably supply-side-oriented in nature.