The monetarists did not believe in the market determining the price of money. They thought the role of monetary policy was to constantly increase the supply of money.

That religion had in common with the Marxian and Keynesian religions the beliefs that all the statists champion but are too scared, or disingenuous, to openly defend, namely:
1. governmental inflation of the money supply has no connection to the booms and busts;
2. government's creation of new money does not confer exclusive benefits on privileged interests and defraud the poor and middle class;
3. governmental inflation of the money supply is a process by which we can create real wealth - ports, and bridges and hospitals - simply by stamping pieces of paper;
4. the wealth appearing under this process is not mere wealth distribution: it is net real wealth creation.
5. thus there is no reason in principle why government could not abolish the scarcity of capital, and make us all independently wealthy, without the need for anyone to engage in productive activity.
6. the criterion of efficient markets is a state of equilibrium in which no further action is possible. Government should strive to impose that state of affairs on society by forced redistributions guided by self-interested academic eggheads guided by mathematical equations that no-one else in government or society can understand.
7. government has a super-human power to know the difference between real prices, and a theoretical equilibrium, even though the knowledge necessary to know it is dispersed among millions of people and simply unknowable *ever* to a central planning committee;
8. government is capable of managing not only the part of the economy that is the money supply, credit and banking, but by extension of knowing how most economically to allocate what capital to what uses, and therefore to manage the whole of the economy.

This debate is an inexcusable re-run of the destructive, long-refuted, socialist idiocy of the 20th century.

I challenge anyone to defend the above propositions, or show why they are not necessarily implied in governmental regulation of the money supply.

Peter, you and the author of the article both seem to have missed the part where the well-regulated Australian banking system did not run to the brink of collapse.

Surely you won't also be among the motley crew arguing that the shallowness of our recession and the (seeming) beginning of a recovery had nothing at all to do with the stimulus and in fact that if had not been implemented there would have been no downturn at all.

With one word, Peter Hume: China.
I wonder how the author intends to stop the major shareholders of the banks also becoming the major shareholders of the relevant insurance companies?
The concept of a 'thieves guild' makes wonderful fiction...

peter, please study some economic history boom and busts occurred during periods of low inflation, especially in the pre-keynesian era. they occurred prior to the reserve banks and when the private banks controlled the money supply. with deregulated currencies, floating exchange rates (non government control) so called market forces we see overshooting and under shooting between various currencies of over 50%. That is to purchase the same quantity of goods in different countries after exchange conversion we see 50% error. The market does not mystically set the "right" price. individuals gather incomplete information and act on that information.

Peter H - unfortunately Peter, although the free market stuff sounds really good, the reality to which everyone is moving is a mixture of regulation and free market. In fact in Australia in recent decades we've moved in both directions at once, freeing up markets - chucking out tariffs and regulations on markets such as milk and egg production - and clamping down on the financial markets. Both shifts have occured for very good reasons. You should ask yourself why.

You just struck a sore nerve with me, Curm....
As one very close to the action with the deregulation of milk in NSW, I witnessed the North Coast Dairy industry almost literally decimated. Farm gate prices were slashed by almost half, Cooperatives went to the wall, small farmers who had survived and raised families for decades were encouraged or forced off their farms while retail prices went up, and consumers were forced to pay more for dairy products.
For good reasons? Only if you were a shareholder in a major supermarket chain.