WEBVTT
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Welcome to another in a series
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of commentaries on the current economic scene
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produced and recorded
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by Instructional Dynamics Incorporated.
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Our guest again this week,
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the week of February 3rd, is Dr. Paul Samuelson,
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Professor of Economics
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at the Massachusetts Institute of Technology.
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Professor Samuelson, what's on the top of the list
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for this week?
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For this first week of February,
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there're really many exciting things to talk about,
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almost too many.
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The new team in Washington
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has started out in a very low-keyed way
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so that I think we have no new clues
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as to what the tone of the economy is likely to be
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in 1969 coming out yet from Washington.
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It is necessarily still the same old guessing game.
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Will the 4% inflation of 1968 be tamed down
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in 1969 towards a 3% rate?
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Will the end of 1969 be on an upbeat?
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Or is the first half of the year
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to be the period of greatest exuberance
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as by next Labor Day we begin to feel the pinch
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of Federal Reserve tightening
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that is going on today?
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Let me first touch on the most current bits
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of information that are coming in each day.
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Then as time permits,
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I'd like to go into some deeper analysis
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of the forces shaping our economic destiny this year
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and in the future.
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Point number one I think
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is the fact that the Fed
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does seem to be putting on the screws.
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At the end of January, net free reserves
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had reached the record negative level
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of 758 million.
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That is net borrowed reserves of 758 million.
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The total of discount borrowings after we subtract
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from them the small amount of excess reserves
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of the banks came to about 3/4 of a billion
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and this is a 16-year record.
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Now, net free reserves
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is only one of many indicators
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and cannot be relied on by itself
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to tell us what is happening in the money markets
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but it is one very important straw in the winds.
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One Friday's report doesn't define a deflationary epoch
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but the most recent acts
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are in line with what most experts
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have been expecting from the Federal Reserve.
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The tightening action of the Federal Reserve
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has shown itself in a number of effects.
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Interest yields are again trending upward,
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bond prices falling.
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Lowered expansion in business in January
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seems to have been down even after seasonal corrections.
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The money supply has probably declined
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for a couple of weeks
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and perhaps will not be up much
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for the months of January and February.
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These acts of the Fed fit in well
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with what a number of the Reserve authorities
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have been saying.
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Some of you may have read a U.S. News
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& World Report interview
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with Governor George Mitchell of the Federal Reserve
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a few weeks ago
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in which he spoke of the Fed's determination
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to curb inflationary expectations.
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Some will write this off as Madison Avenue propagandizing
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in which the Federal Reserve says one thing
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and does another but not I.
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To predict what is going to happen to the money supply
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and credit conditions in the future,
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I find it useful to monitor very closely
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all the indications of attitude
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that I can get on the part of those
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who do the voting in the Open Market Committee
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of the Federal Reserve.
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The fact that George Mitchell is a Kennedy appointee
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with a historic record of favoring full employment policies
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gives his words I think particular significance.
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I should also call to your attention
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recent speeches by Andrew Brimmer
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of the Federal Reserve Board.
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Governor Brimmer is an able economist
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and he happens also to be black.
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His concern with the problem of unemployment
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among ghetto youth
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needs no documentation nor explanation.
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As a Johnson appointee to the Board,
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Brimmer has been an articulate activist
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on the liberal side.
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It is therefore I think of especial significance
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when Brimmer states that controlling inflation
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is in the long-run interest of the black community
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even if it means some increase in ghetto unemployment
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in the short run.
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When President Alfred Hayes
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of the New York Federal Reserve Bank says things like this,
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that's not news.
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Hayes is a fine Yale gentleman,
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a Rhodes Scholar and a pillar
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of the New York financial community.
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Hayes has been saying things like that
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for a long time
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but when Brimmer and Mitchell begin to say things like that,
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it suggests to me
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that an agonizing reappraisal is going on
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within the former majority
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of the Federal Reserve Board,
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the former majority which was prepared
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to make considerable sacrifices
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on the side of price instability
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in return for high employment.
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I believe we're getting a gradual shift
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in the position of the majority
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and I believe this has significance for the future.
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I happen to be a week or so ago
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at a meeting of academic experts
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who were called for the purpose
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of giving advice on macroeconomic policy.
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This was a completely off-the-record session.
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I discovered to my surprise
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that among most of the experts there,
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I was one of the, or seemed to be,
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one of the greatest activists
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for Federal Reserve tightness.
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Now, that perhaps is news
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because it's a rare session of that type
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when I'm not to be found on the side of the angels
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who put great stress upon vigorous real growth
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and high immediate short-run employment.
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Let me review that session
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and some of the arguments that were given.
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On the one hand,
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there were monetarists there
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who have believed right along
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that the rate of growth
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of the money supply has been excessive
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but who are very distrustful
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of correcting an excess of the rate of growth
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of the money supply in one period
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by a subsequent defect
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or deficit or shortcoming or shortfall
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in the rate of growth of the money supply.
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And a typical representative of that group
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would counsel the Fed
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to tighten up in comparison to what it has been doing.
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This as measured by the monistic measure
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of the rate of growth of the money supply.
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But to do is very gradually
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and to do it in not necessarily in one immediate step.
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Just to use some numbers at random,
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and I don't want to pin myself down precisely
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as to which definition of the money supply I'm using,
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let's suppose that a magnitude which in the long run
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is thought by this school properly
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to be at about 5% per annum
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has been running at nine or 10% per annum
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for many, many months.
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The exponents of this view
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would say we'll go from nine or 10%
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down to seven or 8% in one stage
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and then go in another stage from seven or 8%
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down to 5%.
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But don't repeat, don't go from 10 to 9%
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in one period of time, in a short period of time
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to below 5%
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in the thought that you atone
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in a later period for the sins
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and indulgences of an earlier period.
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That was one group
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and I would say that the counsel of that group
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would be to cool off any new converts
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towards activism against inflation
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within the Federal Reserve system.
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Perhaps an even larger group,
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the majority group in the country at large
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accepts the still fashionable view
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that the first half of 1969 is likely to be the weakest half
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and is likely to see real rates of growth
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that average not much different
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from $10 billion per quarter
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in each of the first two quarters
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and then who expect some increase
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in the last couple of quarters.
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This particular group gives ranges of estimates
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very much like those
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of the National Industrial Conference Board Panel
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that Paul McCracken and others were on
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meeting at the end of last year
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which has been mentioned in this tape
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and which if time permits I would like
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from a methodological view to comment on in greater detail
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a little bit later.
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Well, according to this group,
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the economy is going to do some cooling off
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on it's own account
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and therefore they tell the Federal Reserve
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to tighten but be careful
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that you don't indulge in overkill.
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Now, as against these two groups,
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I seem to be in favor of greater activism.
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How can I explain that?
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One, I take it as basic as the axiom for the discussion
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that the authorities in question
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are prepared to have unemployment go up some.
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Now, I don't mean go up a lot,
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but to go up from the last figure
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that I have seen of 3.3%
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to let's say 4% as an investment
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in bringing the rate of inflation down
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from 4% to 3.5 or 3 and 1/3%.
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I don't say that my own value judgments necessarily
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endorse this axiom 100%
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but as an expert called in,
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I take that to be the axiom of the client
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and I proceed on that particular basis
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and I think that most of the people there
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would not in fact quarrel with that axiom.
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Now, I don't think that if the Fed does things
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in a very moderate way,
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you're gonna get any short-term moderation
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and I believe that monetary policy can do something
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in the short run.
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If I could coin a phrase,
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there is a widespread belief
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in fine distuning.
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There's the belief that if you let
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the money supply fluctuate
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a little bit, that you greatly de-stabilize the economy.
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I don't believe in that theory
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of fine distuning.
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As I read the evidence, the rate of growth
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of the money supply
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can be a very choppy time series
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but everything in neoclassical
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and post-Keynesian economic theory argues
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in my view towards the proposition
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that it's the rate of change of the money supply
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over a considerable period of time,
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what you might call its permanent component
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which is important
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and the system has great capacity
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to ride with and cushion fluctuations
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in the rate of growth of the money supply.
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Let me put it concretely
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and I'll overstate my case a little bit
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just in order to make the analytical argument very clear.
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I believe that if over a period of a year or two years,
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5% happens to about the right rate
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of growth of the money supply,
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from the beginning of that period
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to the end of that period,
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that if you have gone in the first third
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of that period
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at an excessive rate,
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then it is good business to go in the next third
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of the period at a deficit rate
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averaging out to about the right figure
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and I think the system is very well adapted
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to react properly to that kind of action.
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Let me give some dramatic language
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not to convince you of my point
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and not to demonstrate my point
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and not to prove that I'm right in my point
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but for the purpose of clarifying
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what my point is.
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I do not believe
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that when you run the rate of growth of the money supply
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at 9% for a period of time
276
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when it should be run at 5%,
277
00:14:11.050 --> 00:14:14.900
I have no quarrel at the moment with that 5% figure,
278
00:14:14.900 --> 00:14:17.320
that that can be likened
279
00:14:17.320 --> 00:14:22.150
to a truck which runs over a pedestrian
280
00:14:22.150 --> 00:14:23.623
and does him great harm.
281
00:14:25.790 --> 00:14:28.703
But suppose I did believe that.
282
00:14:30.840 --> 00:14:32.290
Let us suppose that this incident
283
00:14:32.290 --> 00:14:34.120
is now followed by a period
284
00:14:34.120 --> 00:14:36.466
in which you have the rate of growth of the money supply
285
00:14:36.466 --> 00:14:40.880
growing by only one or 2%,
286
00:14:40.880 --> 00:14:43.960
a shortfall from the 5%.
287
00:14:43.960 --> 00:14:45.880
I don't believe that that act
288
00:14:45.880 --> 00:14:48.230
can be then likened
289
00:14:48.230 --> 00:14:52.640
to running the Mac truck backward over the patient,
290
00:14:52.640 --> 00:14:54.003
over the pedestrian,
291
00:14:54.910 --> 00:14:57.690
killing him twice or breaking the other bones
292
00:14:57.690 --> 00:14:59.590
in his body that you missed breaking
293
00:14:59.590 --> 00:15:02.400
by your first misdemeanor and felony.
294
00:15:02.400 --> 00:15:05.240
On the contrary, I think that one act
295
00:15:05.240 --> 00:15:07.730
tends to wash out the other.
296
00:15:07.730 --> 00:15:09.750
The homely illustration that I give
297
00:15:09.750 --> 00:15:12.590
comes from the fact that a number
298
00:15:12.590 --> 00:15:15.890
of my children are very keen and expert sailors
299
00:15:15.890 --> 00:15:19.670
and they tell me that if you wanna head due north,
300
00:15:19.670 --> 00:15:21.890
and if the wind is coming from the north,
301
00:15:21.890 --> 00:15:23.490
do not despair,
302
00:15:23.490 --> 00:15:26.430
that you tack to the north east
303
00:15:26.430 --> 00:15:27.610
and you go along that tack
304
00:15:27.610 --> 00:15:30.150
for quite a while, of course,
305
00:15:30.150 --> 00:15:35.150
meriting or at least getting the severe criticism
306
00:15:35.180 --> 00:15:38.610
of those who say you should be going due north
307
00:15:38.610 --> 00:15:42.590
and then after you've gone quite a while north east,
308
00:15:42.590 --> 00:15:44.300
you take the other tack
309
00:15:44.300 --> 00:15:45.710
which is north west
310
00:15:45.710 --> 00:15:49.410
and you end up about where you ought to be
311
00:15:49.410 --> 00:15:52.030
and you end up in an optimal way
312
00:15:52.030 --> 00:15:53.760
in that fashion.
313
00:15:53.760 --> 00:15:55.680
Now, I'm not going to argue
314
00:15:55.680 --> 00:15:59.779
that the optimal always calls for attacking
315
00:15:59.779 --> 00:16:02.000
that the wind is always against you
316
00:16:02.000 --> 00:16:06.530
and that you must always move in a bang, bang way
317
00:16:06.530 --> 00:16:09.090
but I come from MIT
318
00:16:09.090 --> 00:16:10.430
where there are lots of experts
319
00:16:10.430 --> 00:16:12.380
in cerebral mechanisms
320
00:16:12.380 --> 00:16:15.760
and one of the most efficient types
321
00:16:15.760 --> 00:16:16.830
of cerebral mechanisms,
322
00:16:16.830 --> 00:16:19.750
in fact, it's used more than any other system
323
00:16:19.750 --> 00:16:22.210
in the world today, we use it in our refrigerators,
324
00:16:22.210 --> 00:16:25.950
we use it in our homes is the bang-bang method
325
00:16:25.950 --> 00:16:27.630
of optimal control,
326
00:16:27.630 --> 00:16:30.900
namely when our thermometers goes below
327
00:16:30.900 --> 00:16:32.420
a certain figure,
328
00:16:32.420 --> 00:16:35.400
our heating systems go on,
329
00:16:35.400 --> 00:16:37.050
it's a question of off and on.
330
00:16:37.050 --> 00:16:41.750
And when the temperature now rises
331
00:16:41.750 --> 00:16:44.223
a certain amount above the goal level,
332
00:16:45.270 --> 00:16:48.350
the bang-bang mechanism goes off,
333
00:16:48.350 --> 00:16:50.040
it is again a case of tacking.
334
00:16:50.040 --> 00:16:52.810
Now, it's true that if I were designing
335
00:16:52.810 --> 00:16:54.460
a big airplane and if I have lots
336
00:16:55.299 --> 00:16:58.460
of possibilities for an optimal synthesis,
337
00:16:58.460 --> 00:17:02.690
I may prefer to a sledgehammer bang-bang approach
338
00:17:04.435 --> 00:17:05.480
a more gradual approach
339
00:17:05.480 --> 00:17:09.100
and in fact I do favor a more gradual approach.
340
00:17:09.100 --> 00:17:11.730
You know leaving all metaphors aside
341
00:17:11.730 --> 00:17:14.190
that my more gradual approach in this matter
342
00:17:14.190 --> 00:17:17.850
is to have monetary policy lean
343
00:17:17.850 --> 00:17:21.137
against the wind as best we can predict
344
00:17:21.137 --> 00:17:24.670
where the wind will be in the future
345
00:17:24.670 --> 00:17:26.200
after that period of lag
346
00:17:26.200 --> 00:17:28.800
when monetary policy takes its effect
347
00:17:28.800 --> 00:17:30.740
and I do not believe on the basis
348
00:17:30.740 --> 00:17:33.860
of the studies that I have seen
349
00:17:33.860 --> 00:17:36.170
that one must be an agnostic in thinking
350
00:17:36.170 --> 00:17:39.010
that such a prediction is possible
351
00:17:39.010 --> 00:17:42.610
and that following such a philosophy
352
00:17:42.610 --> 00:17:44.943
will do more harm than good.
353
00:17:46.820 --> 00:17:48.190
In a nutshell then,
354
00:17:48.190 --> 00:17:53.190
I think that after we have had too much inflation,
355
00:17:55.200 --> 00:17:58.130
and too increase increase in the money supply
356
00:17:58.130 --> 00:17:59.600
by the Federal Reserve,
357
00:17:59.600 --> 00:18:02.180
we should have its opposite.
358
00:18:02.180 --> 00:18:06.970
Now, I can advise this on the Federal Reserve
359
00:18:06.970 --> 00:18:08.890
with better conscience
360
00:18:08.890 --> 00:18:11.700
because my full philosophy
361
00:18:11.700 --> 00:18:13.760
is that the Federal Reserve does not now have
362
00:18:13.760 --> 00:18:16.750
to decide what it will do for the next six months,
363
00:18:16.750 --> 00:18:19.690
some of the experts who presume
364
00:18:19.690 --> 00:18:22.200
to advise the Federal Reserve
365
00:18:22.200 --> 00:18:23.940
talk of the following terms,
366
00:18:23.940 --> 00:18:26.860
they say you should have at any one time
367
00:18:26.860 --> 00:18:29.240
a definite policy.
368
00:18:29.240 --> 00:18:32.390
That policy should be in season for a long time.
369
00:18:32.390 --> 00:18:35.160
When I counsel you what to do,
370
00:18:35.160 --> 00:18:37.100
I say to myself,
371
00:18:37.100 --> 00:18:39.930
what should you be doing for the next six months?
372
00:18:39.930 --> 00:18:41.870
Because you are stuck with that policy.
373
00:18:41.870 --> 00:18:44.030
That isn't at all the view that I take
374
00:18:44.030 --> 00:18:45.170
as an adviser.
375
00:18:45.170 --> 00:18:46.650
My view is that the Federal Reserve
376
00:18:46.650 --> 00:18:51.650
should be tacking, it should be changing its course often
377
00:18:51.970 --> 00:18:56.970
as the best indications of the future winds come in
378
00:18:57.180 --> 00:18:59.480
and therefore if I'm wrong
379
00:18:59.480 --> 00:19:01.700
and if following my advice
380
00:19:01.700 --> 00:19:04.230
and having the money supply level off
381
00:19:04.230 --> 00:19:08.290
or growing at only 1% for a while,
382
00:19:08.290 --> 00:19:12.840
should turn out to give some indications
383
00:19:12.840 --> 00:19:14.200
of trouble in the future,
384
00:19:14.200 --> 00:19:15.810
I don't think the Federal Reserve should hold
385
00:19:15.810 --> 00:19:18.200
on to that course.
386
00:19:18.200 --> 00:19:20.430
I'm as near as the nearest telephone.
387
00:19:20.430 --> 00:19:23.060
I am perfectly prepared
388
00:19:23.060 --> 00:19:25.030
to tell them to ease up.
389
00:19:25.030 --> 00:19:27.860
It's again, to use analogies
390
00:19:27.860 --> 00:19:29.417
for the purpose of clarifying the position
391
00:19:29.417 --> 00:19:31.760
and not for the purpose of persuading,
392
00:19:31.760 --> 00:19:34.740
it's like playing a fish.
393
00:19:34.740 --> 00:19:36.491
You give him some line,
394
00:19:36.491 --> 00:19:40.140
and then you reel in a line
395
00:19:40.140 --> 00:19:42.540
whereas if somebody tells you the only way
396
00:19:42.540 --> 00:19:45.130
to catch a fish, a large fish
397
00:19:45.130 --> 00:19:48.808
and with a weak line is just a steady pressure,
398
00:19:48.808 --> 00:19:52.110
that's of course in the case of fishing nonsense.
399
00:19:52.110 --> 00:19:54.360
Well, for reasons that have nothing
400
00:19:54.360 --> 00:19:57.350
to do with fishing, I think that that is not good policy
401
00:19:57.350 --> 00:20:00.223
in the field of monetary policy.
402
00:20:02.650 --> 00:20:04.920
Professor Samuelson, earlier you mentioned
403
00:20:04.920 --> 00:20:07.360
that you were gonna make some methodological comments
404
00:20:07.360 --> 00:20:10.550
about the kind of forecast the Conference Board put out
405
00:20:10.550 --> 00:20:12.510
at the end of last year.
406
00:20:12.510 --> 00:20:14.200
Would you like to do that right now?
407
00:20:14.200 --> 00:20:17.710
I think, I'll pass up that opportunity.
408
00:20:17.710 --> 00:20:19.128
There will be plenty of time
409
00:20:19.128 --> 00:20:22.150
to go into those matters.
410
00:20:22.150 --> 00:20:26.250
I'd like to spend some more minutes
411
00:20:26.250 --> 00:20:30.530
on evaluating as objectively as I can
412
00:20:31.520 --> 00:20:35.400
certain aspects of monetarism
413
00:20:35.400 --> 00:20:38.680
by which I mean only a view
414
00:20:38.680 --> 00:20:43.680
that the primary macroeconomic variable
415
00:20:44.180 --> 00:20:48.130
to watch for the purpose of predicting
416
00:20:48.130 --> 00:20:52.870
and controlling aggregate demand
417
00:20:52.870 --> 00:20:56.570
in the period of a year or two ahead
418
00:20:56.570 --> 00:20:58.830
is the money supply
419
00:20:58.830 --> 00:21:00.380
and its rate of growth
420
00:21:00.380 --> 00:21:04.480
with definitely secondary emphasis
421
00:21:04.480 --> 00:21:07.510
to be placed upon fiscal policy variables
422
00:21:07.510 --> 00:21:09.368
like changes in tax rates
423
00:21:09.368 --> 00:21:13.683
or changes in expenditure.
424
00:21:19.300 --> 00:21:21.100
I've just been reading an interesting article
425
00:21:21.100 --> 00:21:26.100
on monetarism that my colleague, Robert Solow of MIT
426
00:21:26.210 --> 00:21:29.520
has written for The London Times.
427
00:21:29.520 --> 00:21:33.340
Professor Solow is a very eminent economist
428
00:21:33.340 --> 00:21:34.173
in many fields
429
00:21:34.173 --> 00:21:36.550
and he's this year the Visiting Eastman Professor
430
00:21:36.550 --> 00:21:39.710
at Balliol College in Oxford.
431
00:21:39.710 --> 00:21:41.840
And so, he naturally has a special interest
432
00:21:41.840 --> 00:21:44.750
in the debate that has been going on in England
433
00:21:44.750 --> 00:21:47.190
over whether the rate of growth of the money supply
434
00:21:47.190 --> 00:21:49.040
is a trivial variable
435
00:21:49.040 --> 00:21:52.150
or is the all-important variable
436
00:21:52.150 --> 00:21:56.053
that macroeconomic policy should concentrate on.
437
00:21:57.380 --> 00:21:59.610
As I mentioned in an earlier tape,
438
00:21:59.610 --> 00:22:03.130
for a long time many British experts poo pooed
439
00:22:03.130 --> 00:22:04.600
the role of money.
440
00:22:04.600 --> 00:22:06.660
Actually concluding in the infamous
441
00:22:06.660 --> 00:22:08.420
official Radcliffe Report
442
00:22:09.420 --> 00:22:12.350
in effect that money does not matter.
443
00:22:12.350 --> 00:22:13.970
Now, a number of us have been trying
444
00:22:13.970 --> 00:22:17.070
to convert these experts back to commonsense.
445
00:22:17.070 --> 00:22:20.770
In particular Harry Johnson
446
00:22:20.770 --> 00:22:22.750
who was originally a Canadian
447
00:22:22.750 --> 00:22:24.370
but who now holds the Chair
448
00:22:24.370 --> 00:22:27.070
at the London School of Economics part of the year
449
00:22:27.070 --> 00:22:28.610
and the Chair at the University of Chicago
450
00:22:28.610 --> 00:22:31.150
the other part of the year
451
00:22:31.150 --> 00:22:34.280
has written an article
452
00:22:34.280 --> 00:22:39.280
in The Times earlier in November I believe
453
00:22:40.800 --> 00:22:45.800
in which he chastised the British economists
454
00:22:45.820 --> 00:22:48.030
for not believing in monetarism
455
00:22:48.030 --> 00:22:53.030
and Professor Solow is taking a more eclectic position
456
00:22:53.320 --> 00:22:57.730
in which he is scolding the English economists
457
00:22:57.730 --> 00:23:00.190
for being so doctrinairism thinking earlier
458
00:23:00.190 --> 00:23:01.710
that money did not matter
459
00:23:01.710 --> 00:23:03.200
and he's also scolding them
460
00:23:03.200 --> 00:23:04.650
for having accumulated
461
00:23:04.650 --> 00:23:06.890
so little evidence on the subject
462
00:23:06.890 --> 00:23:09.070
but he is awarding them
463
00:23:09.070 --> 00:23:14.070
I guess swallowing a simplest version of monetarism.
464
00:23:16.490 --> 00:23:21.350
Now, I won't go into his particular arguments
465
00:23:21.350 --> 00:23:23.045
because I think they overlap
466
00:23:23.045 --> 00:23:25.430
with some things that I wrote
467
00:23:25.430 --> 00:23:30.013
for the British in The Sunday Telegraph
468
00:23:31.540 --> 00:23:33.670
and which I've mentioned in earlier tapes
469
00:23:33.670 --> 00:23:36.910
but I'd like to go into some new material
470
00:23:36.910 --> 00:23:40.440
that I find in his article.
471
00:23:40.440 --> 00:23:43.700
First, there's a chart
472
00:23:43.700 --> 00:23:48.700
which shows from 1956 on
473
00:23:48.710 --> 00:23:51.040
the behavior of the money supply in Britain
474
00:23:52.180 --> 00:23:55.840
and the behavior of the Gross National Product.
475
00:23:55.840 --> 00:23:58.300
And to my surprise,
476
00:23:58.300 --> 00:24:02.160
the trend of the rate of growth of the money supply
477
00:24:02.160 --> 00:24:06.700
in England is quite a smooth one.
478
00:24:06.700 --> 00:24:09.640
Now, I don't think it would in every period conform
479
00:24:09.640 --> 00:24:12.500
to the Joint Committee's stipulation
480
00:24:12.500 --> 00:24:16.210
that it always be between 2%
481
00:24:16.210 --> 00:24:19.780
and five or 6%
482
00:24:19.780 --> 00:24:23.470
but I think over any year's period,
483
00:24:23.470 --> 00:24:25.940
it would be quite smooth.
484
00:24:25.940 --> 00:24:28.330
So, looking at this chart,
485
00:24:28.330 --> 00:24:32.188
we have almost a laboratory experiment
486
00:24:32.188 --> 00:24:36.510
to see how monetarism might work out.
487
00:24:36.510 --> 00:24:37.710
It's interesting by the way
488
00:24:37.710 --> 00:24:39.170
that it's only a smooth trend
489
00:24:39.170 --> 00:24:40.588
but it's a smooth trend
490
00:24:40.588 --> 00:24:45.511
at what one supposes is about it's right rate
491
00:24:45.511 --> 00:24:48.960
because there's a chart of the rate of real growth
492
00:24:48.960 --> 00:24:51.720
of the British GNP
493
00:24:51.720 --> 00:24:54.610
and the two curves just hug each other
494
00:24:54.610 --> 00:24:56.543
and go along in parallel.
495
00:24:57.710 --> 00:25:00.760
You might think then that everything that was proper
496
00:25:00.760 --> 00:25:03.900
in a macroeconomic field was done in Britain
497
00:25:03.900 --> 00:25:05.390
and what's all the shooting about?
498
00:25:05.390 --> 00:25:07.440
Well, we know that the British economy
499
00:25:07.440 --> 00:25:09.570
has had a very unsatisfactory performance
500
00:25:09.570 --> 00:25:11.660
on many counts
501
00:25:11.660 --> 00:25:16.610
and the third diagram chart
502
00:25:18.970 --> 00:25:22.840
shows that the rate of growth of the actual GNP
503
00:25:22.840 --> 00:25:24.990
in money terms, not its real growth
504
00:25:24.990 --> 00:25:28.140
was quite inflationary.
505
00:25:28.140 --> 00:25:32.990
So, we have here a simplest demonstration
506
00:25:32.990 --> 00:25:35.270
that just controlling the rate of growth
507
00:25:35.270 --> 00:25:36.960
of the money supply
508
00:25:36.960 --> 00:25:40.250
as your primary macroeconomic variable
509
00:25:40.250 --> 00:25:45.113
is not conducive to controlling inflation
510
00:25:46.360 --> 00:25:47.963
in the British case.
511
00:25:50.150 --> 00:25:52.830
Finally, since my time is almost up,
512
00:25:52.830 --> 00:25:56.860
I will quote from Professor Solo
513
00:25:56.860 --> 00:25:59.720
who refers to the only test
514
00:25:59.720 --> 00:26:02.100
that he has seen for the United Kingdom
515
00:26:02.956 --> 00:26:05.750
of the role of the money supply
516
00:26:05.750 --> 00:26:08.550
and it is by no means so favorable
517
00:26:08.550 --> 00:26:09.973
to the money supply.
518
00:26:11.160 --> 00:26:14.430
Quote it was done C.R. Barret
519
00:26:14.430 --> 00:26:16.340
and Professor A.A. Walters then
520
00:26:16.340 --> 00:26:18.080
of the University of Birmingham
521
00:26:18.080 --> 00:26:19.980
who were aware of the difficulties
522
00:26:19.980 --> 00:26:21.223
I've just been raising.
523
00:26:22.130 --> 00:26:25.760
Even so, they give the pound to the money supply
524
00:26:25.760 --> 00:26:28.600
only before the First World War.
525
00:26:28.600 --> 00:26:30.550
The simple Keynesian approach
526
00:26:30.550 --> 00:26:34.040
which I may say I myself do not advocate,
527
00:26:34.040 --> 00:26:36.470
this is not Solow speaking,
528
00:26:36.470 --> 00:26:40.946
Samuelson speaking, wins out in the inter-war period
529
00:26:40.946 --> 00:26:42.670
and it does slightly better
530
00:26:42.670 --> 00:26:44.573
after the Second World War period.
531
00:26:45.620 --> 00:26:49.030
Well, I don't think that such tests
532
00:26:49.030 --> 00:26:50.146
are worth very much
533
00:26:50.146 --> 00:26:52.840
'cause I don't think you can settle these
534
00:26:52.840 --> 00:26:55.130
by simple tests
535
00:26:55.130 --> 00:26:58.410
as to which of them by itself did better.
536
00:26:58.410 --> 00:27:01.570
I believe that you have to mix the two together
537
00:27:01.570 --> 00:27:04.840
and an eclectic position
538
00:27:04.840 --> 00:27:07.704
is the best one, you've heard that before from me
539
00:27:07.704 --> 00:27:09.960
and as I sign off,
540
00:27:09.960 --> 00:27:12.420
I make the prediction that you'll hear it again
541
00:27:12.420 --> 00:27:13.700
from me in the future.
542
00:27:13.700 --> 00:27:17.160
Thank you for Professor Paul Samuelson of MIT.
543
00:27:17.160 --> 00:27:19.970
If you have questions, comments or suggestions,
544
00:27:19.970 --> 00:27:22.360
write Instructional Dynamics Incorporated,
545
00:27:22.360 --> 00:27:26.663
166 East Superior Street, Chicago, 60611.