Keynesians, Monetarists and Keynes: The End of the Debate — or a Beginning?

In large part, monetarists and Keynesians, in their debate on the mechanism and efficiency of monetary policy, have accepted as ground rules the same economic model, the IS-LM model due to Hicks. It has been shown (Chick, 1973b; 1977, ch. 3) that short of restricting the parameters of that model to extreme values the debate cannot be settled on a priori argument alone. It was then suggested that the debate might usefully be couched in terms of the assumptions concerning adjustment rather than the static parameters, though this suggestion required persuading the monetarists to turn their attention to the early stages of the path to equilibrium. These points were made in the context of the ground rules of the debate as it then stood. Both the method — comparative static analysis and dynamic adjustment according to the correspondence principle — and a crucial assumption — that the mode of introduction of new money is a matter of indifference — were accepted for purposes of the argument.