It is unfair to portray, as a few have done, the loose money folks as political naifs who think all the contradictions of capitalism would disappear if a reformed Fed flooded the economy with paper.
Of course, capital-labor conflict is primary and of course, focusing on money without taking this into account is foolhardy. But I think we need to understand the economy as more institutionally flexible than Doug and others are admitting. As the economy grows and labor markets become tight, governments, responding to pressure from both business and citizens, must make decisions which entail institutional change. One of these decisions is whether to accomodate economic growth through loose money policies.
If they make the decision to accomodate growth, and if no other institutional changes are made, then the result may be inflation, which may hurt workers wages and may exacerbate political tensions. At that point governments need to make another set of decisions - whether to force institutional change to accomodate the inflationary pressures. Like price controls, centralized wage bargaining, other things that people thought about in the 1940s and again in the 1970s. Probably, if these institutional changes were made, other tensions and contradictions would become apparent and other institutional changes would need to happen. Some of this may be predictable; some of it is not.
I have argued for loose money policies, not because I believe they are without contradictions, but because I believe that we on the left need to create, with the limited means we have, a rhetorical space that asks - Why should money be tight? Why should economies collapse because little pieces of paper have been rendered scarce? Why should we not start from the proposition that the economy could be run to serve human needs and, from there, design monetary policies that accomodate those needs? Why assent to institutions that force us to accept unacceptable alternatives?
Ellen Frank
I once gave a series of workshops on monetary policy for Jobs with Justice and told the attendees that if they wanted to alter the balance of power in this country, the Fed was the last place to begin the batt