To incite rebellion against their Roman rulers during the time of empire, the rebel leader – played by John Cleese – asks the question: ‘What have the Romans ever done for us?’, only to be met by a long and impressive list of achievements and contributions made by the Romans to the quality of life. In asking a similar question about monetarism – or perhaps, more precisely, a question about the role of monetary quantities in the design, conduct, transmission and presentation of monetary policy – I seek to explore whether a similar conclusion can be drawn. While monetarism remains unfashionable in academic and central banking circles, perhaps it has contributed more to the past, present and potential future of monetary policy than we conventionally admit. No money, no inflation Twenty years ago, the former Governor of the Bank of England (and now Lord) King published an  Page 3  article in the Bank’s Quarterly Bulletin entitled ‘No money, no inflation – The role of money in the economy’. [1] This article addressed an apparent paradox. On the one hand, Milton Friedman’s famous monetarist dictum that ‘inflation is always and everywhere a monetary phenomenon’ appeared to have become entrenched in the economics profession’s conventional wisdom. [2] As a result, in most advanced economies, monetary policy had been assigned clear and independent responsibility for the maintenance of price stability.
On the fiscal front, there has been an intensive drive to correct the budget deficit, as indicated by the significant reduction in the structural general government deficit since 2009. The increased transparency and the strengthening of the fiscal framework further to the approval of the Law on Budgetary Stability and Financial Sustainability in 2012 assist the different tiers of government –central, regional and local – in meeting the budget targets. In turn, the reform of the pensions system is a necessary step for ensuring the sustainability of public finances in the medium term. Despite these achievements, the rising course of the public debt/GDP ratio has not yet been halted and is a reminder of the scale of the fiscal effort still required. There has also been progress in private-sector deleveraging. The sluggishness of household and corporate income is slowing the process, as a result of which the weight of the adjustment is falling on the contraction in lending extended to these sectors. That said, this contraction in credit may be and indeed is proving compatible with its appropriate restructuring. The analysis of the Banco de España suggests that, even in years  BIS central bankers’ speeches  3  as difficult as the past two, the proportion of firms that have not seen a fall-off in their bank loans has been significant, around 30%. And more significantly, those that have not seen their credit decline are, precisely, those firms which, in general, were departing from a sounder position of debt and profitability.