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Abstract

The candour of Gerald Bouey's declaration of faith in monetary targeting, infrequent in public pronouncements of central bankers and decidedly uncharacteristic of governors of the Bank of Canada, serves as a simple reminder of the enthusiasm with which Canadian state officials greeted monetarism. Productivity and economic growth were declining in Canada, while current account deficits and unemployment were both rising and the numbers of days lost to strikes was higher than in any other OECD country.
Monetarism in
Canada and the
World Economy
ANDRE C. DRAINVILLE
The maintenance of an average rate of growth of the money supply
no higher than the long-term average rate of growth of the pro-
duction of goods and services in Canada ... is required if the inflation
is to be brought under control
Gerald Bouey, Saskatoon Manifesto
September 22, 1975
1
It is a marvellous speech. It is the best speech I have ever heard
a central banker give...I could have written it myself.
Milton Friedman, commenting on Gerald Bouey's Saskatoon
Manifesto
October 2, 19752
T
he candour of Gerald Boney's declaration of faith in
monetary targeting, infrequent in public pronounce-
ments of central bankers and decidedly uncharacter-
istic of governors of the Bank of Canada, serves as a simple
reminder of the enthusiasm with which Canadian state of-
ficials greeted monetarism. Productivity and economic
growth were declining in Canada, while current account defi-
cits and unemployment were both rising and the numbers
of days lost to strikes was higher than in any other OBCD
country. Bank of Canada planners, wary by their own account
of the old and tired Keynesian stories and suspicious of the
ability of incomes policies and budgetary measures to control
inflation and discipline wage settlements, sought new points
of reference in the uncompromising strictures of monetarism.
With the Saskatoon Manifesto, the Bank of Canada publicly
committed itself to a monetarist policy of "gradualism,"
based on the progressive reduction of the growth rate of
Studies in Political Economy 46, Spring 1995
7
Studies in Political Economy
Ml (a narrow measure of currency and demand deposits)
and became in the words of Thomas Courchene "the world's
most monetarist central bank."3
This tum to the ostensibly apolitical discipline of money
was not a uniquely Canadian phenomenon. Starting in the
mid-1970s, the transition that has become a defining attribute
of contemporary (post-Keynesian, post-Bretton Woods, post-
fordist post-modem, neoliberal, neoconservative) politics
was beginning to take shape. In the midst of crises of fis-
cality and governability, monetarist attempts to control
money growth became a fixture of central bank policies
within the OECD countries. In England monetarism had ap-
peared on the state agenda following the devaluation crises
of the 1960s and had blossomed in the 1970s and 1980s
into broad controls of money growth and a systematic attack
on state spendiug.f In France the public commitment to
monetary targeting began in earnest in 1976 with the pub-
lication of targets for the growth of M2.
5
This commitment
was consecrated politically in the summer of 1979 with the
"plan Barre," which married a monetarist attack on expec-
tational inflation to direct price control measures.f In Ger-
many the Bundesbank publicly announced targets for mone-
tary growth in 1974. These targets were broadened in 1975,
and again in 1979, activating a wide range of monetary in-
struments (different interest rates used as intermediary tar-
gets, a variety of quantity instruments, and reserve require-
mentsj.? The Italian experience with monetarist targeting be-
gan in 1974 with a commitment by the Bank of Italy to the
International Monetary Fund (IMF) following an exchange
rate crisis. The efforts to curtail the swell of "Total Domestic
Credit" (a broad measure of money growth) were focused
on the Bank's open market operation.
8
In the United States the Open Market Committee of the
Federal Reserve Bank (FRB) adopted its first informal mone-
tary targets in the spring of 1970.9In the late 1970s these
targets began to take shape as policy instruments and, under
the chairmanship of Paul Volcker, the FRB moved a step
beyond using monetary targets as intermediary policy ob-
jectives. On October 6 1979, it moved to "base control":
federal monetary policy, not content with influencing money
8
DrainvilleJMonetarism
growth indirectly through interest rates, began its attempt
to shape directly the growth of the American money stock
through control of bank reserves and bank credit.U' Volcker's
"cold bath," as senior officials of the Bank of Canada came
to refer to the FRB's unexpected decision to move towards
base control, was undoubtedly the most important moment
of American monetarism. With it, monetarism became the
de facto guiding principle of American economic manage-
ment.
The specificity of these national experiences with mone-
tarism is well documented. Less well documented, however,
and certainly less well theorized is the place occupied by
monetarism in the global regulation of accumulation. Above
and beyond the technical effort of central banks to control
national money growth, monetarism was also an event in
the world economy; part of a global monetarist "reading"
of the conditions of accumulation constructed by the "organs
of management of the world economy," as former External
Affairs Minister Joe Clark termed them.l! This reading, or
the way in which the "organs of management" identified
the changing constraints to accumulation in the world econ-
omy, the diagnosis they established, and their policy pre-
scriptions (what J. Marcus Fleming of the IMF called the
Fund's "system of guidance") was an essential, if unex-
plored, part of national monetarist experiences.R
This is the gap in our understanding of monetarism that
this article attempts to address. My intention is to examine
the role played by monetarism in the global regulation of
accumulation, and to explore its relationship with the Ca-
nadian monetarist experiment. This is not an easy task. In
general analyses of monetarism as a political phenomenon
are discouraged by the sanitized elegance of neoclassical
economics, which attempts to study economic policy in iso-
lation from social and political relationsbips.U In Canada,
apart from those periods in which prohibitively high interest
rates have focused public interest on the Bank of Canada's
policies, monetary policy has remained largely outside the
realm of public debate.
Such difficulties are even more pronounced in the context
of the world economy where the opacity of policy processes
9
Studies in Political Economy
presents an even greater barrier to public scrutiny or debate.
Even in the post-war period, when, according to Fred Hirsch,
"the regulation of international money [was brought] from
the arcane comers of the textbooks into the forefront of
economic and political affairs,"14 analysts were left with
little more to focus on than a collection of mental images
- of "central bankers international," of "international fra-
ternity," and of "an international spider's web of laissez-faire
connections.vl- As we shall see, with the advent of mone-
tarism even these metaphorical points of reference became
more difficult to assemble.
Yet, in order to understand the significance of monetarism
in Canada it is essential to account for the role played by
monetarism in regulating global accumulation. With the
Saskatoon Manifesto, the Bank of Canada announced a
monetarist policy of exception that was at the centre of a
changing relationship between Canadian state policy and
global regulation.
Monetarism in the world economy This text raises the
question of the relationship between unity in the world econ-
omy and diversity in national practices. More specifically
it asks: did the constellation of distinct national monetarisms
in the 1970s hide a monetarist principle of unity, constructed
specifically in the world economy and addressing itself to
the tangible and immediate problems of global accumula-
tion? Did Paul Volcker's assertion that "the similarity in
concept [of national monetarisms] is more striking than the
variants in details" reveal an extra-national definition of es-
sential principles of regulation?16 And if monetarism meant
more politically and socially than an international cacophony
of discordant monetary policies, what then were the princi-
ples of unity that gave coherence to the nominally national
management of money and how did they evolve?
In developing an an~wer to these questions, to the riddle
of the articulation between national and global regulations,
we must begin by analyzing the way in which the central
agencies of the world economy addressed the concrete prob-
lems of organization in the world economy. Here we can
find indications of a global monetarist reading at work. The
10
DrainvilieIMonetarism
most important of these tangible problems of global accu-
mulation in the mid-1970s was the disintegration of the
money form that had accompanied the Bretton Woods regime
of embedded liberalism. The story of this disintegration is
an essential prelude to the development of Canadian mone-
tarism.
i. Money in the Bretton Woods world economy At the heart
of the Bretton Woods monetary system was the position of
the US dollar as a standard of value and a medium of ex-
change. The use of the American dollar as an undiscrimi-
nating general equivalent was the centrepiece of monetary
regulation in the post-war period; it was its monetary sig-
nature. Above and beyond giving the Federal Reserve Bank.
a critical role in managing money in a world of relatively
sovereign states, the Bretton Woods system can also be said
to have entrenched in the world economy a particular prin-
ciple of monetary regulation, a particular money-form.
The Bretton Woods system sought to promote interna-
tional cooperation on monetary problems, facilitate the bal-
anced growth of international trade, sustain high levels of
employment and real income, promote exchange rate stabil-
ity and minimize disequilibrium in national balances of pay-
ments.!? These principles of monetary interaction, or what
Robert Keohane aptly called the "rules" of the post-war ex-
change rate system, defined the essential regulatory princi-
ples of a monetary system instituted above all to regulate
exchange conditions between national currencies.If
With the Bretton Woods monetary system the American
dollar became an international commodity currency of sorts,
functioning much like gold under the gold-standard system,
or like any commodity - be it chocolate, rubber, or oxen,
Bancors or Gammors - in a commodity-based international
system of negotiated parity. It served to regularize and "to
promote the wider international exchange of goods and serv-
ices through appropriate measures in the fields of interna-
tional monetary arrangements and commercial policy."19
This achievement of the Bretton Woods monetary system is
partially captured by what Pierre Salama referred to as the
"dollarisation" of national currencies: the marginalisation of
11
Studies in Political Economy
national currencies and the loss of confidence in their mean-
ing, as well as the broader substitution of the dollar for
national monies in peripheral social formations (the exogeni-
sation of the functions of national money for Salama).20
In this system the exchange of commodities was regulated
internationally, and adjustments to the exigencies of inter-
nationalized production were a national affair. This was the
principle at the heart of what John Ruggie called "the com-
promise of embedded
liberalism.t'-!
It expressed itself
throughout the institutions of the Bretton Woods system,
which tended to the multilateral order while preserving the
prerogatives of states to maintain domestic social stability
and full employment. In the international monetary system
this compromise took the form of an multilateral fixed-rate
system, cushioned by assistance from international agencies
in cases of short-term deficit on current account.
Though it certainly gave world money a "clear meaning"
in the eyes of the national central banks, and in so doing
effectively internationalized the validation function of
money, monetary regulation in the Bretton Woods period
functioned in a classically liberal fashion, as a "lubricant
for the machinery of multilateral trade."22 Monetary disci-
pline in the Bretton Woods period was, as Michel Aglietta
put it, "once removed" - distant from national social for-
mations.23 It rested, as had the Gold Standard system, upon
ex post facto regulation, acting indirectly through national
balances of payments and accommodating national policies
of full employment.
ii.
The immediate post-Bretton Woods period The historical
nexus of the American Dollar and an exchange-based money
form in the world economy effectively ended in 1971. On
August 15 Richard Nixon, responding to an increasingly se-
vere US balance of payments deficit and pressures on the
US dollar, announced his New Economic Policy: the US would
temporarily suspend convertibility of the dollar. Among other
measures directed at restoring the US balance of payments, an
additional tax of 10 percent was imposed on imports. In De-
cember of that year the Smithsonian Agreement attempted
to restore a measure of stability in the international monetary
12
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DrainvilleIMonetarism
system. With it, the US Dollar was slightly devalued (from
$35 to $38/ounce), and G 10 central bankers committed them-
selves to avoiding policies of competitive devaluation. The
stability offered by the Smithsonian Agreement, however,
proved of short duration. By 1976 the end of the system of
fixed exchange rates had been officially recognized by the
Interim Committee of the IMF, and the search for other prin-
ciples of monetary interaction, which had begun in 1972
with the establishment of the IMF's Committee of Twenty
(the Special Committee on the Reform of the International
Monetary System and Related Issues), was given a new
measure of urgency.24
Though the emancipation of national currencies from the
confines of dollar-based fixed exchange rates had effectively
removed the foundations of the Bretton Woods edifice, the
early efforts towards monetary reform sought to re-establish
an exchange-based form of regulation; a non-dollar-centred
exchange-based regulation, but an exchange-based regula-
tion nonetheless. The guiding principles of exchange-based
monetary regulation were endorsed by industrialized coun-
tries at the first G6 meeting in November 1975 in Ram-
bouillet, France. There, in spite of acknowledging the dif-
ficulties of returning to a system of fixed exchange rates,
G6 countries endorsed the idea of a fixed international sys-
tem of monetary equivalences.s> In the same vein the Com-
mittee of Twenty produced an "Outline of Reform" in 1974,
calling for a widening of the role of Special Drawing Rights
(SDRs) to make them, in effect, genuine international reserve
assets on which "asystem of exchange-based monetary regu-
lation could be based.26 The Guidelines for the Management
of Floating Exchange Rates produced
by
the Interim Com-
mittee ofthe IMF are also revealing.27 Adopted in June 1974
the guidelines recognized the need for member countries to
"intervene on the foreign exchange markets...to prevent or
moderate sharp and disruptive fluctuations from day to day
and from week to week in the exchange value of its cur-
rency," and proposed that "the member should not act ag-
gressively with respect to the exchange value of its cur-
rency." Thus, moderation in monetary behaviour, which had
13
Studies in Political Economy
been quasi-automatic under the Bretton Woods system, was
now sought on more consensual grounds.
The second amendment to the Fund's Articles themselves
- which became effective in April 1, 1978 - sought to
make SDRs the essential reserve asset of an international
monetary system of fixed parity. In this respect the Amend-
ments followed the path outlined in 1975 by the GlO's de-
cision to begin dissociating SDRs from gold and to base a
new system of pegged rates on relatively autonomous
SDRs.28 In fact, the whole of the "grand design" of the IMF
for a "stable but adjustable par value system" was essentially
an attempt to re-establish a system of exchange-based mone-
tary regulation with SDRs as the standard. In the same man-
ner that the Dollar Exchange Standard had replaced the Gold
Exchange Standard, this "SDR exchange standard" would
simply replace the Dollar Exchange Standard with a truly
multilaterally-made currency.29 Where currency regulation
based on the US dollar as a virtual international money
failed, re-defined Special Drawing Rights, now evaluated
with reference to a basket of national currencies, would serve
as a new general equivalent.F'
In this first period of reform, the IMF sought to move
the international monetary system from one based on a na-
tional currency used as a supranational money to a multi-
lateral money (SDRs), without altering the principles of
monetary regulation.U To use a vocabulary familiar to stu-
dents of the
ecole de la regulation,
and to students of in-
ternational regimes at large, while the instruments of its im-
plementation (and in effect its institutional form) would
change, the modalities of regulation and the principles that
had defined post-war monetary regulation would remain in-
tact.
However, with the explosion of world inflation and the
effective disappearance of a coherent international-monetary
point of reference, the re-establishment of exchange-based
monetary regulation on an SDR basis proved to be beyond
the boundaries of politically possible international coordi-
nation.32 If a tendential internationalization of money had
been facilitated in the post-war period, when the American
dollar served as a hegemonic general equivalent and as the
14
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DrainvilleIMonetarism
underwriter of world growth and was capable of sustaining
the "automaticity" of the international monetary system, it
now raised in the post-Bretton Woods period very concrete
obstacles to post-hegemonic cooperation.33 In this context,
monetarism promised a solution to both the crises of mone-
tary equivalences in the post-Bretton Woods period, and the
accompanying legitimacy crisis of international organisa-
tions attempting to manage the world economy.3
4
iii. Monetarism in the world economy Starting in the mid-
1970s the consensus among international central bankers was
that the health of free societies depended upon the restoration
of "stable money." In this context global monetarism estab-
lished itself as a credible policy solution to the protracted
crisis of the international monetary system.3SIn the same
manner that the market fixes prices without establishing
value, the Bretton Woods monetary system had temporarily
established the terms of trade of national currencies without
determining them. In the 1970s, however, the global mone-
tarist reading emerging from the organs of regulation of the
world economy placed money at the centre of a system of social
discipline. Indeed as money "unifies and arranges ...through
its capacity to accommodate individuality (and) other-
ness,"36 global monetarism sought to orchestrate different
national discourses on the necessity of managing the
growth of the national money supply, and thus sought to
fashion a virtual global regime of responsible monetary
behaviour.
These monetarist discourses were, of course, shaped by
the varying powers of the central banks, and by different
national opportunities for strict monetary control, within an
environment in which other political actors pressed their
claims and priorities. Global monetarist discipline was sen-
sitive to these very real differences in national conditions (i.e.
the development of money markets, the velocity of money, the
autonomy of the central bank and the relationship between
national deficits and money aggregates). The IMF's acknow-
ledgment that, while advantageous, aradical world-wide mone-
tarist "shock treatment" would bring about undesirably wide
variations in exchange rates and currency speculation which
15
Studies in Political Economy
could threaten the stability of the world economy, astutely
recognized the boundaries of political possibilities.I? From
its inception, then, global monetarism was not about impos-
ing a uniform path for money growth the world over; it was
about coordinating and arranging different national moneta-
risms and fashioning a coherent international regime out of
this varied patchwork. Above and beyond national differ-
ences, global monetarism sought to construct an international
regime centred on nationally-specific, but internationally co-
ordinated, policies to control the growth rates of money. In
the post-war period, Bretton Woods regulation had set up a
vulgar regulation of monetary exchanges in the world econ-
omy, unconcerned with the social production of a monetary
equivalence in the world economy. Now, global monetarist
regulation concerned itself with money as a social arbiter.
Thus, in the monetarist period, internationally defined money
became more than the linchpin of a coherent internal system
of exchange where its task was simply to
dire le prix.
It
became a guide to the disciplining of social relations.
Global monetarism revealed itself through the new pre-
ponderance of national regulation of monetary growth, be-
getting a common upholding of monetary discipline in the
social formations of the world economy. Here then is the
key to the global unity of national monetarist policies: mone-
tarism in the world economy defined international monetary
obligations in terms of national commitments to put control
over the growth of the money supply at the very centre of
policy discourse. In this sense global monetarism was, to
paraphrase E.P. Thompson's famous aphorism about the cold
war, about itself; it had its own logic grounded in monetarist
pretensions to place money at the centre of the regulation
of social relations.
This international orchestration of national attempts to
control money growth was not constrained by unconditional
or mechanical obligations in the way that monetary policies
under Bretton Woods were constrained by the fixed exchange
rate system. Rather, it was steered in a manner more com-
mensurate with the new possibilities of monetary policies
in a world of floating exchange rates, by collegial coopera-
tion between central bankers. This cooperation, part of what
16
DrainvilleIMonetarism
Robert W. Cox termed the process of "interstate consensus
formation,"38 was nurtured in the immediate post-Bretton
Woods period by a growing institutional framework. By anal-
ogy with Milton Friedman's American policy group, we
could call this the "shadow open market committee" of the
international monetary system. This network was as fluid
as the informal contacts between the members of the inter-
national fraternity of central bankers, and as large and varied
as the personal and institutional relationships between offi-
cials of national central banks.39
In the making of Canadian monetarist policy, this "shadow
committee" was composed of two different groups of insti-
tutions. The first consisted of well-established meeting
places of international policy making: the IMF, the Working
Party
3
of the Organisation for Economic Cooperation and
Development (DECO), and the Bank for International Set-
tlements. Of those institutions, the Bank for International
Settlements (BIS) was perhaps the most important to Cana-
dian central bankers. If there was an institutional fulcrum
of the "shadow committee" in the monetarist period, this
was most certainly it. Technically an international clearing
house for the central banks that own it, the BIS also provided
a secretariat for a variety of central bankers gatherings.
4O
Above and beyond that, however, the importance of the BIS
in the latter part of the 1970s lay in its status as a central
bankers' private club, meeting ground and refuge, where
ideas on monetary policy and on techniques of monetary
management could be exchanged in the comfortable quiet
and most discrete atmosphere of the "big doughnut in Basle"
(as the BIS's headquarters were affectionately referred to
by Canadian central bankers). The DECO's Committee of
Experts on Monetary Policy (created in 1969 to gather to-
gether junior officials with expertise and interest in monetary
policy) was also of special importance to Bank of Canada
officials, as were some key committees of the IMF: the Com-
mittee of Twenty on the Reform of the Monetary System (who
met for the first time in 1972 under the chairmanship of John
Turner), the Interim Committee (which Allan MacEachen
chaired in 1981), the Ministerial meetings of the GI0 (the coun-
tries of the General Agreement to Borrow), as well as the
17
Studies in Political Economy
Executive Board of the IMF (where, over the years, key
figures of the Department of Finance and of the Bank of
Canada have sat: Steve Handfield-Jones, Bob Johnson, Ber-
nard Drabble and Louis Rasminsky).
In the immediate post-Bretton Woods period, the "shadow
open market committee" of the international monetary sys-
tem was also composed of a second set of institutions, en-
compassing a broader and more fluid network of academic
conferences, policy conferences of central banks, and of un-
ceremonious and uncelebrated workshops. These served both
as a sort of monetarist conscience for the reform of the mone-
tary system, and as informal working sessions on the tech-
niques of targeting. At the centre of this informal "shadow
committee" were the Konztanz meetings referred to by a
former senior official of the Bank of Canada, and an active
participant in the meetings, as the "Brunner-Meltzer mone-
tarist summer camp" (after monetarist economists Karl Brun-
ner and Allan Meltzer). Although formally arranged as aca-
demic conferences, where papers were read and panels or-
ganized, the Konztanz meetings operated in a fashion remi-
niscent of the Bilderberg meetings, as an occasion for econo-
mists, policy makers and parties interested in questions of
monetary targeting to meet in a setting that lent itself to
both econometric and policy exchanges. Unlike the Bilder-
berg's sessions though, the Konztanz meetings were not
about building self-conscious consensus on economic strate-
gies. Rather, they brought together selected monetarist aca-
demics (who presented current research) and a political com-
munity of central bankers from North America and Europe
(sitting as unidentified "participants"). The meetings also
invariably attracted monetarist economists from the OECD's
monetary study group, from the BIS (especially its Monetary
Division), and from the IMF. Usually participants came on
their own behalf and not as representatives of their organi-
zations. Other academic/policy conferences also served. as
a rallying point for the monetary policy community, their
importance varying from year to year and with the individu-
als who attended. Notable examples are the bi-annual
Carnegie/Rochester Conferences (also organized by Karl
Brunner and Allan Meltzer), held alternatively in Pittsburgh
18
DrainvilieIMonetarism
and Rochester (aimed directly at the implementation prob-
lems posed by the monetarist panacea), the meetings of the
Mont Pelerin Society, and the yearly Karl Brunner Confer-
ences on ideology in Interlaken, attended privately by Bank
of Canada officials.
Working conferences organized by foreign central banks
were also a gathering place for the "shadow committee."
These monetary conferences were not held with any regu-
larity, as research interests of foreign central bankers, as
well as the technical and political difficulties of monetary
targeting, dictated when and where they were to be held. In
the United States monetary conferences were organized by
autonomous regional affiliates of the FRB. Of special im-
portance to the Bank of Canada, were those of the Federal
Reserve Banks of Boston (which held twice-yearly confer-
ences on the practice of targeting), Kansas City, and St. Louis
(which pioneered the macroeconomics work on the "reduced-
form" model that strongly influenced the Bank of Canada's
own monetarist model).41
In the post-Bretton Woods period these institutions were
the starting point of national monetarist discourses. In order
to properly understand the relationship between national
monetarisms and global monetarist regulation it is important
to understand that national targets for the growth of money
aggregates (the iconic "M's" of monetarist policies) were
monetary instruments corresponding to flexible exchange
rates in the same manner that domestic credit controls cor-
responded to fixed exchange rates in the Bretton Woods pe-
riod. Both serve as policy expressions of the articulation
between the regulation of accumulation in the world econ-
omy and in national social formations. Under the conditions
of a regime of fixed exchange rates, the control of domestic
credit creation had kept exchange rates in line with an ex-
panding world economy and guaranteed stability in the ex-
change conditions of currencies. Thus, in the same fashion
that the freeing of paper currencies from their metallic base
at the end of the gold standard increased the autonomy of
state policies and opened the door to greater national regu-
lation, the diminished formal discipline of a flexible ex-
change rate regime unleashed the potentialities of monetary
19
Studies in Political Economy
policy and virtually obliterated the automatic constraints im-
posed by the sustenance of virtual world money.
Monetarism was the first transnational mot d' ordre to
come out of the contemporary crisis, and for good reasons.
The dollar-standard system was the first of the post-war
global structures of regulation rattled by the crisis. In this
context, the organs of management of the world economy
began making what the Bank for International Settlements
called a "general case for...keeping [monetary] aggregate[s]
on a taut reign."42 In the first phase of the crisis, monetarism
became the principal yardstick of disciplined accumulation
in the world economy. It was installed, sometimes by se-
cretive "Monday clubs" (as in Chile for exampleS'), some-
times to rationalize credit (Japan), sometimes at the insis-
tence of the IMP following currency crises (Italy, Argentina,
Uruguay, England), and sometimes because it presented a
credible solution to a social crisis that fordist regulation
could not contain (Canada, France, Germany).
Though it varied enormously from country to country,
according to differences in the composition of money mar-
kets, or to the degree of institutional independence of central
banks, monetarism everywhere submitted social relations to
a concept of control constructed specifically to meet the cri-
sis of monetary equivalence in the world economy. Where
monetary discipline in the Bretton Woods period had been
"once removed" and somewhat distant from national social
formations, monetarism imposed a very tight, on-going dis-
cipline on social relations. This preoccupation with the con-
trol of money growth as the defining element of state policy,
and the invocation of external constraints "helpful in secur-
ing public acceptance [for monetarism],"44 meant that the
crisis of the international monetary system reached local
strikes, salary negotiations and budgetary policies, and im-
pressed an unflagging transnational discipline upon national
social forces.
This, then was the global setting for the Canadian expe-
rience with monetarism, marked from 1975 until 1982 by a
policing of the steady and gradual growth in the money sup-
ply, and the institution of a monetarist system of discipline.
20
DrainvilieIMonetarism
Monetarism in Canada From the very beginning of the
gradualist period, the global consensus of central bankers
on the malignancy of inflation and on the necessity to curtail
the growth ofthe world's money supply, offered in the words
of Gerald Bouey, a "favourable environment for Canada's
efforts to put its own house in order."45 As a technical ex-
ercise in controlling money growth, Canadian monetarism
was a failure. From the start, the narrowness of MI made
it quite meaningless for the purpose of monetary regulation,
and financial deregulation made increasingly difficult any
attempts at targeting. In the high-interest rate environment
created by monetary gradualism, the chartered banks began
offering their customers means by which they could reduce
their cash balances (which were not offering suitable returns)
and increase their interest gains, which effectively shifted
money out ofMI.46 Thus, in the gradualist period, the falling
growth rate of MI reflected more the narrowness of MI's
horizons, as well as its important shortcomings as a measure
of money, than the ability of the Bank of Canada to control
money growth. Far from leading a charge on money growth,
the Bank's policies were increasingly trailing behind changes
in actual practice. Thus, the Bank of Canada tried to reduce
the rate of increase of the money supply at a time when the
growth rate of money demand was falling, in an environment
where there was a move towards zero reserve (because of
the deregulation of deposit-taking institutions).
There was, however more to monetarism than a technical
exercise in aggregate control. Above all, monetarism, in Can-
ada as well as in the world economy, was about itself; it
sought to establish the credibility of its policy discourse
and to discipline social relations. Thus, in the gradualist
period, the meaningful control of monetary aggregates was
less central to the policy of the Bank of Canada than the
credibility of its public gestures, which were meant to signify
that the Keynesian underwriting of private credit extension was
over.47In this sense, MI was a most useful aggregate. While
its narrowness and changing velocity made it "the very worst
of monetary aggregates on which any public policy could be
based,"48 it was a most useful proximate instrument in estab-
lishing this discipline, as its short-term responsiveness to
21
Studies in Political Economy
changes in interest rates made it a secure base for a credible
public discourse.s?
This broad disciplinary function of monetarism in Canada
corresponded very much to the outlook of the organs of
management of the world economy, for whom the political
credibility of monetary targeting was the foremost consid-
eration.so Above and beyond the technical desire to control
money growth, monetarism in the world economy targeted
social relations at large and was about establishing new, more
disciplined, terms of accumulation defined by what the
OECD termed the "collegial management of the developed
world's interests."S1 Thus, the task of Canadian monetarism
was to bring globally-defined monetary discipline to bear
on the Canadian social formation. In doing so, it transformed
monetary policy, and profoundly altered political possibili-
ties in Canada.
i. Before monetarism: exchange-based monetary discipline
in Canada In the post-war period the Bank of Canada had
steadfastly refused to commit itself to fixed policy targets.
Rather, in the spirit of Bretton Woods regulation, it adopted
a two-pronged policy of keeping a broad pluralist outlook
on credit conditions while managing exchange rates. In the
words of Conservative Finance Minister Douglas M. Fleming
this policy defined Canada's "international obligations" and
established Canada's standing as "a law abiding member of
the international financial and commercial community."S2
Evidence of the Bank's limited tolerance of monetarist
prescriptions prior to the Saskatoon Manifesto were provided
in submissions to the Gordon and Porter Commissions, ap-
pointed respectively in 1957 and 1961, the first to assess
Canada's economic prospects, the second to clarify the re-
lationship between the Bank of Canada and the Department
of Finance. These submissions and the Reports themselves,
stand as measured and cautious Canadian equivalents to Brit-
ain's Radcliffe Commission, or to the American "Report of
the Commission on Money and Credit," which both rejected
unequivocally the utility of the inflexible guides of mone-
tarist theorists.53 They carefully underlined that the objec-
tives of monetary policy were but aspects of public policy,
22
DrainvilleIMonetarlsm
and that public policy itself ought to be guided by changing
political circumstances. In this fashion, the broad parameters
of monetary policy were established by the need to stabilize
the international balance of payments, to manage the ex-
change value of the currency, and to maintain full employ-
ment and social stability.
These policy priorities stood even in the years between
1953 and 1961 and after 1970, when the Canadian Dollar
was nominally floating. In that period, the central preoccu-
pation of the Bank of Canada was to limit short-term capital
movements between Canada and the United States, and more
generally to minimize fluctuations in exchange rates. This
was secured by "a remarkable parallelism" in Canadian and
American interest rates.54
The crisis surrounding the resignation of Bank of Canada
governor, James Coyne, also reveals the intolerance of the
Canadian state towards attempts at long-term monetary
monitoring in the pre-monetarist period. The commitment
to exchange rate stability went hand in hand with Keynesian
commitments to high levels of employment and economic
growth, and monetary policy was defined in terms of its
ability to support fiscal expansion.55
The immediate context of the Coyne. crisis is important.
A large proportion of the public debt incurred during the
Second World War came due in the late 1950s. In order to
absorb this repayment, the Conversion Loan program was
initiated, whereby the Canadian state would convert war-time
loans into peace-time ones. This was, in Malcolm Campbell's
words, "the largest financial project ever undertaken in Can-
ada."56 It ran afoul of James Coyne, who resolutely refused
to allow any further growth in the money supply in Canada.
Coyne's policy stance, even if it was not shaped by a mone-
tarist will to fight expectational inflation through publicly
announced targets, did, however, attempt to guide monetary
policy beyond its reactive stance towards longer-range ob-
jectives.J? Coyne's strategy emphasized the importance of
monetary targets standing above and beyond any short-term
objectives defined by the immediate necessities of public
policy.58This strategy was vociferously refuted by John Die-
fenbaker's Finance Minister, Douglas Fleming, and, after a
23
Studies in Political Economy
very public struggle, Coyne was forced to resign in July of
1961.
Coyne's failure is indicative of the limited role that could
be played by monetary adjustment in the Bretton Woods
period when monetary regulation was predicated, above all,
on the equalization of the conditions of exchange of national
currencies.59 Similarly, the Bank of Canada's reliance on
moral suasion as the principal instrument of its monetary
policy in this period illustrates the effort of the Bank to
find a certain degree of policy latitude within the parameters
of Bretton Woods monetary regulation. Though difficult to
implement, moral suasion was an instrument of monetary
policy well-suited to the exigencies of the Bretton Woods
monetary system. It allowed the Bank to fulfil its function
of cohesion, that is to say to use its influence to remind
commercial bankers of their position in the Canadian econ-
omy, without forcing it to conduct an aggressive monetary
policy (for example through the imposition of reserve re-
quirements), which would upset the flow of capital, the bal-
ance of payments, and the exchange rate of the Canadian
dollar. With moral suasion, private money lenders were "per-
suaded to comply [with central bank policy] either on the
general ground of responsibility to the community at large,
or on the narrower ground of good relations with the central
bank.,,60 Informal meetings with private bankers gave the
Bank a forum to expose its long-range policy considerations,
and an occasion to exert a limited influence over both money
creation in Canada and the broad parameters of Canadian
production. It also permitted the interest rate flexibility
needed to manage the exchange conditions of the dollar.s!
These were the policy priorities that the Saskatoon Mani-
festo put into question. Monetarism challenged the primacy
of exchange rates as the object of monetary policy, displaced
interest rates as an intermediary objective, and made mone-
tary steering by moral suasion obsolete. It also changed the
terms of Canada's responsibilities towards the collegial man-
agement of the world economy.
ii.
Canadian monetarism and global discipline
Monetarism was
about imposing a discipline that was market-based, impersonal,
24
--_ .. _-- ------------
DrainvilleJMonetarism
and above the reach of social forces, changing "not from
week to week or depending on the circumstances, even from
quarter to quarter, but certainly over periods long enough
for the behaviour of the economy to be significantly affected
by the trend of the money supply."62 With monetarism,
monetary policy placed itself above changing political cir-
cumstances, and beyond public policy.
In the gradualist period, the articulation between the long-
term monetarist obligations of the Bank of Canada and short-
term constraints engendered a two-fold policy rationale: first
the Bank adjusted interest rates within the boundaries per-
mitted by M 1 targets; second it sought to bring short-term
interest rates movements closer in line with the longer-term
targets for M1 by "smoothening and spreading" the adjust-
ment to interest rates differentials with the United States.63
The limits that M1 targets imposed on interest rate ma-
nipulations by the Bank of Canada were especially evident
at the beginning of the gradualist period, when the Canadian
dollar rose above parity with the American dollar. As it had
done in previous periods when upward pressure was brought
to bear on the Canadian dollar, the Bank of Canada sought
to contain these pressures by lowering its Bank Rate. In
November 1976, the Bank Rate was brought back to 9 per-
cent from 9.5 percent; in December 1976, it was further
adjusted to 8.5 percent; in February 1977 it was brought to
8 percent; and in May 1977 to 7.5 percent. Beyond the desire
to counter the exchange pressures on the Canadian dollar
that the Bank's public commitment to monetarism had
brought, these policy moves also revealed the importance
of the long-term gradualist framework in the making of in-
terest rate policy. Indeed, changes in the Bank Rate were
measured against the necessity to keep M1 within its target
range. The November 1976 decrease of the Bank Rate for
example, was admittedly authorized because of the need to
stimulate greater M1 holdings.64 Similarly, the adjustment
of interest rates in December 1976, February 1977 and in
May 1977, again in the context of strong upward pressures
on an already overvalued Canadian dollar, were all situated
by the Bank in the context of M1 targeting.6S Thus the timing
25
Studies in Political Economy
and the magnitude of changes in the Bank.Rate were shaped
by targeting.
The necessity of tailoring interest rate policy to the exi-
gencies of MI targeting - or at the very least the necessity
of situating changes in the Bank.Rate in the context of gradu-
alism - became less constraining with the great increase
in American interest rates from the beginning of 1979 to
the end of gradualism. With the rise in American rates the
short-term upward pressures on Canadian interest rates were
added to the long-term pressures that MI targeting was al-
ready putting on the Bank. of Canada to increase the Bank.
Rate. In this context, the articulation of long-term targeting
of money growth and short-term management of interest
rates was quite undemanding: as both were pushing interest
rates in the same direction, the Bank. simply yielded to the
compounded forces of its short- and long-term obligations
and steadily increased the Bank. Rate.
In this context, the Bank. of Canada could also detach
itself altogether from interest rate management without
threatening its long-term objectives: in March 1980, four
months after Paul Volcker's "cold bath" gave new momentum
to interest rates in the United States, the Bank. of Canada
announced that from then on, the Bank.Rate would be "float-
ing," that is to say that it would be set "114 of I percent
above the latest average established in the weekly tender
for the 91 day Treasury Bills issued by the Government of
Canada."66 With the Bank.Rate floating, the Bank.of Canada
let Canadian interest rates adjust more quickly to American
rates, and supplemented the impact of high interest rates on
money growth with policy directives to chartered bank.s.67
Thus the Bank. of Canada let interest rates float with market
movements, and remained the custodian of long-term tar-
geting.
The relationship between the objectives of gradualism and
the short-term necessities of managing exchange rates were
not so harmonious. While interest rate pressures underwrote
gradualism after 1979, to the point where the Bank.of Canada
could let the Bank. Rate float, exchange rate pressures posed
a greater challenge to the long-term control of money growth
in Canada. From the beginning of gradualism in 1975, the
DrainvilleIMonetarism
Bank. of Canada worked on the oft-repeated assumption that
"the best way to avoid problems related to the external value
of the Canadian dollar was to ensure that its internal value
was to be maintained."68 In the same way that the Bank. of
Canada sought to flatten sharp interest rates movements, it
attempted between 1975 and 1982 to reduce "expectational
pressures on the Canadian dollar."69 Especially from 1978
on, when downward pressures on the Canadian dollar in-
creased, the Bank.'s adjustments of the Bank. Rate were mo-
tivated by the desire to avoid abrupt, short-term, exceptional
swings in the exchange rate. Such swings would put into
question both the ability of the Bank. to target Ml growth
rates in the long term, and the desirability of a floating rate
system, "the only practical system in today's world."70 In
April 1978 for example, when the Bank. increased the Bank.
Rate from 8 percent to 8.5 percent, it announced that "[w]hat
has been accomplished has been the re-establishment of the
confidence that the bottom will not be allowed to fallout
of the dollar, and the floating exchange rate system has been
preserved.t'"! This policy mix was most respectful of global
monetarism, which emphasized the need to take short-term
corrective actions to avoid balance of payments difficulties
that could threaten policies of adjustment.72
At the beginning of gradualism, this articulation between
short-term exchange rate management and long-term target-
ing was workable, as long as the Bank of Canada was willing
to accept an overvalued Canadian dollar. From September
1975 until the end of 1976, the commitment of the Bank. of
Canada to targeting generated a great inflow of foreign long-
term capital and brought the Canadian dollar up to $1.03
US in July 1976,73 This increase in the exchange value of
the Canadian dollar brought a deterioration of Canada's in-
ternational payments position, increased unemployment, and
generated a substantial growth in the current account defi-
cit.74 It did nothowever, threaten Ml targeting. In this con-
text, the Bank. of Canada simply managed interest rates in
the fashion presented earlier (that is to say, within the
boundaries of Ml targeting), and maintained a steadfast
gradualist position.
27
Studies in Political Economy
From the middle of 1978, rising American interest rates
and concerns with Canadian economic policies reduced the
influx of funds from abroad and brought increasing down-
ward pressures on the Canadian dollar. These pressures had
a contradictory effect on the policy mix of the Bank of Can-
ada. While rising US interest rates shifted money out of
demand deposits, and thus threatened to depress Ml holdings
below target levels, the need to arrest the decline in the
value of the Canadian dollar forced the Bank of Canada to
consider further interest rate increases. In this situation,
where short-term exchange rate pressures put Ml targeting
into question, the Bank of Canada sought policy instruments
that would send the needed signal that the bottom would
not be allowed to fallout of the Canadian dollar, without
unduly increasing interest rates. Thus, having painted itself
into a comer the Bank of Canada was compelled even before
the American "cold bath" of 1979, to intervene actively in
foreign exchange markets to support the Canadian dollar.75
The Bank began systematically using its foreign reserves to
support the Canadian dollar, in the hope that downward pres-
sures would subside quickly enough to avoid a vicious circle
(where initial reductions in foreign reserves bring further
depreciation of a currency, which leads to greater reductions
in foreign holdings and accrued pressures on the currency).76
This strategy of the Bank of Canada lasted through the ex-
change rate crisis of September 1978-February 1979. During
the crisis, the Bank sold massive quantities of foreign re-
serves, and engaged in what Douglas Peters and Arthur Don-
ner termed "direct exchange rate manipulation in the foreign
exchange markets.v/? Increasingly, the management of ex-
change rates became an essential and necessary feature of
practical monetarism.
After the "cold bath" of October 1979,exchangerate pressures
grew too strong to allow the Bank to simply shore up the dollar
with its foreign reserves while workingto avoid a vicious circle.
The response of the Bank to this prolonged exchange crisis is
revealing of the pressures brought to bear on Canadian gradu-
alism by American monetarism. From March 1980, the Bank
of Canada moved to a floating Bank Rate, in the hope that
the efficiency of market-led adjustments in interest rates
28
DrainvilleJMonetarism
would reduce exchange rates pressures without bringing
about unduly high interest rates. As the Bank had anticipated
the short-term increases in the Bank Rate brought about by
the floating of March 1980 dramatically augmented the shift
of money out of Ml. It was in order to accommodate this
shift without violating its commitment to targeting of M 1
that the Bank of Canada was forced, in September 1980, to
further reduce its long-range Ml target to 4 to 8 percent.
In this situation, the short-term necessities of preventing the
bottom from falling out of the Canadian dollar forced the
Bank of Canada to play catch-up with falling demand de-
posits, the growth of which the Bank had publicly committed
itself to controlling. In a vicious circle of sorts, the lowering
of M1 targets engendered by increasing American interest
rates encouraged the Bank to adopt a free-market laissez-
faire stance towards the Bank Rate, which rose to more than
20 percent in the summer of 1981. Thus, the severe mone-
tarist stance of the American Federal Reserve Bank made
practical monetarism in Canada unsustainable.
The desire of the Bank of Canada to limit the damage
done to its long-term control of Ml by considerable short-
term exchange rate pressures also encouraged the Bank to
return to moral suasion. Although the Bank of Canada had
abandoned moral suasion when it committed itself to tar-
geting in 1975, it was forced to return to it in an exceptional
effort to bolster the Canadian dollar without injuring long-
term targeting. In April 1980,
[t]he Governor of the Bank of Canada, Mr. Gerald Bouey, [asked]
all Canadian financial institutions to do what they [could] to
avoid increased lending to US borrowers either directly, or in-
directly through their Canadian operations, where the demand
appear[ed] to be due to the recent monetary and credit restraint
measures taken in the United States78
In July 1981, moral suasion on behalf monetarism was
also used by the Department of Finance. Minister of Finance
Allan J. MacEachen requested that the chartered banks "re-
duce substantially the amount of their lending in which the
proceeds are converted to foreign currency and used for take-
overs."79 Thus, the contradictory pressures put on the Bank
29
Studies in Political Economy
of Canada by its monetarist policies forced it to resort yet
again to the fluid and informal regulatory mechanisms of
the pre-gradualist period. Once more, the concrete difficul-
ties of maintaining Canadian targeting in the face of US
monetarism forced the Bank of Canada to alter its practical
monetarism while struggling to maintain the integrity of its
long-term commitment to monetarist discipline.
Herein lies the broader significance of monetarism in Can-
ada. Where the efficiency of targeting was limited both by
the narrow powers of the Bank of Canada and by necessary
concern for some measure of exchange rate management,
the public commitment of the Bank of Canada to long-term
objectives of monetary policy was unswerving. This repre-
sents the very essence of global monetarism. The monetarist
reading of the organs of management of the world economy,
and their attempt to fashion a world economy for itself, did
not seek to define mechanical strategies of targeting. Rather,
it recognized that nationally-specific mixes of policies were
of the essence.80 Furthermore, as we saw, global monetarism
excluded any kind of monetary "shock treatment" that would
run the risk of threatening the stability of the world economy.
What it demanded, and what Canadian gradualism provided
to its dying moments, was central bank adhesion to a dis-
cursive discipline coordinated at the level of the world econ-
omy.
After gradualism: monetarism and neoconservatism
As
a technical exercise in targeting money aggregates, mone-
tarism was an historical episode, a "phase of the crisis," to
use the expression of Alain Lipietz,81 which ended in the
beginning of the 1980s with calls from the IMP, the BIS
and the G7 for the re-establishment of pluralist and discre-
tionary monetary policies.82 In Canada, the move away from
targeting was signalled, as had been the adoption of target
ranges for the reduction of money growth, by a public decla-
ration from Gerald Bouey. On September 5, 1982, at the Per
Jacobsson Lecture held at the University of Toronto, Mr. Bouey
announced that the practice of targeting had not provided "a
clear place to stand" and that it would be replaced by a broader,
30
- ---- ----------
DrainvilleJMonetarlsm
more pluralist, monitoring of the "tone and feel of the money
market.
"83
This volte-face of the Bank of Canada was precipitated
by two developments. First, the intransigence of the wholly
unanticipated American tum to base control (Volcker's "cold
bath") rendered unsustainable monetary policies not directly
and immediately preoccupied with short-term movements in
exchange rates, and stifled the long-term targeting preten-
sions of the Bank of Canada.84 In the wake of the cold bath,
the Bank of Canada was forced to assume a reactive stance
and defend the Canadian dollar, which led to unprecedented
increases in all measures of interest rates. In spite of the
attempts by the Bank of Canada to retain a semblance of
control over the money aggregate by drastically lowering
the target range of Ml to complement the rise in interest
rates (earning Thomas Courchene's distinction as the most
restrictive policy in the history of the Bank of Canada85),
the abandonment of targeting, and of the disciplining dis-
course it had legitimized, followed almost naturally from
the American effort to implement base control. Secondly,
the Bank of Canada's efforts at targeting - as well as the
Canadian state's monetarist discourse - were done in by
the deregulation of international financial circuits, which
brought about a proliferation of marketable debt instruments
in the world economy, and everywhere challenged the credi-
bility of monetarist pretensions to control the creation of
money.
In a deeper sense, monetarist targeting was also about
establishing and defending the credibility of ostensibly apo-
litical targets for monetary policy, thereby insulating it from
public scrutiny. In this sense, targeting, while never consti-
tutionally entrenched, can be usefully thought of as the first
Canadian variation on a transnational theme that Stephen
Gill has called "disciplining neo-constitutionalism" - ••the
move towards the construction of legal and constitutional
devices to remove or insulate substantially the new economic
institutions from popular scrutiny or democratic account-
ability," which has increased both the autonomy of states
in adjusting to the exigencies of global accumulation and
their responsiveness to transnational capital.86
31
Studies in Political Economy
In this deeper sense monetarist targeting was the not-so-
thin edge of the neoliberal wedge in Canada and announced
the broad shift toward what William Carroll called the state-
guided "recomposition of finance capital in Canada":
from a system of polyarchic financial hegemony within a 'na-
tional economy' under Keynesian regulation to a business system
within which power is wielded in deregulated and increasingly
international circuits by means of strategic concentrations of
money capital.87
In this broad sense monetary policy in Canada has continued
to play a central part in the construction of neoliberal dis-
cipline in Canada, even after the abandonment of monetary
targeting. Furthermore it has been increasingly isolated from
public policy and has continued to shape the on-going sub-
jection of the economy to the disciplines of money and mar-
kets.
The Annual Report of the Bank of Canada recognized in
1982 that the withdrawal of target ranges for monetary ag-
gregates "did not reflect any basic change in its approach
to monetary policy."88 While the Bank has recently shifted
its long-range objectives, from a focus on monetary targets
toward the goal of zero inflation, this movement has meant
nothing in terms of the relationship between monetary and
public policy. In fact, the adoption of price stability as the
long-range policy goal of the Bank signalled that the setting
of non-negotiable, neoliberal parameters for monetary policy
would simply be continued by other means.
Already apparent in Gerald Bouey's post-targeting dec-
larations, the continuity between the rigidity of targeting
and that of price stability became even more evident with
the arrival in February 1987 of IMF-trained John Crow as
governor of the Bank of Canada. Just as the adhesion to
monetarist targeting had been declared very publicly by Ger-
ald Bouey, the Bank of Canada's move to new targets of
zero inflation was announced - with the same candour - by
John Crow in January 1988 at the Hanson Memorial lecture
at the University of Alberta.89 Again, just as in the time of
targeting, confidence in the resolve of the Bank of Canada to
lead the fight against public demand for inflation-inducing
32
DrainvilleIMonetarism
employment policies was set as the principal by-product of
monetary policy. In the course of Crow's tenure, the goal
of price stability (which had been central to Canadian mone-
tary policy since the fall of targeting ceased to provide a
place to stand) was - in the fashion of the earlier monetary
targets - formally ensconced in medium-term targets for
the reduction in the year-over-year rate of increase in the
consumer price index (CPI). These targets, first announced
in February 1991, were: that the CPI yearly rate of growth
would reach 3 percent bythe end of 1992, 2.5 percent by
the middle of 1994, and 2 percent by the end of 1995, with
the aim of achieving price stability (zero inflation) after that
date.90 The following year, the targets were revised - again
in a move reminiscent of monetarist revisionism following
the American cold bath - to accommodate a quicker-than-
expected drop in the inflation rate.91
On the 22 of December 1993, John Crow was replaced
as governor of the Bank of Canada by Gordon G. Thissen,
who served as senior deputy governor of the Bank for the
length of Crow's tenure as governor. Quick to reassure fi-
nancial markets that the Bank's single-minded pursuit of
zero-inflation would not be compromised, Jean Chretien an-
nounced that inflation targets would remain in place, and
that "normality would prevail. ''92 As we have seen, for two
decades normality in Canadian monetary policy has meant
setting fixed policy targets that isolate monetary policy from
"political noise," as Jean-Marie Dufour and Daniel Racette
dismissively termed it in their analysis for the McDonald
Commission,93 and make the Canadian state more responsive
to the exigencies of accumulation in the world economy.
Conclusion The half-dozen years between the Saskatoon
manifesto and the Per Jacobsson lecture represent a pivotal
moment in the relationship between the regulation of accu-
mulation in Canada and in the world economy. They mark
a passage of sorts, from post-war embedded liberalism, in
which the role of the state was to negotiate the terms of Can-
ada's relationship to the world economy, to disciplinary neo-
liberalism, in which the state negotiates the modalities and
timing of its adjustment to codes of discipline constructed in
33
Studies in Political Economy
the world economy, above the reach of social forces. This
passage is less about disarming the state, as Manfred Bi-
enefeld proposed in a recent essay on financial deregulation,
than it is about internationalizing it.94
This is not to say that we should now speak of interna-
tional imperatives, mechanically imposed from outside na-
tional social formations and coercively presiding, as if by
divine right, over the regulation of accumulation. The rela-
tionship between global and national regulations is always
to be negotiated and remains the result of concrete struggles.
In the present conditions, however, when countries at the
centre of the world economy are increasingly working within
narrowly-defined global mots d'ordre - from monetarism
to the new world order - the world economy exists as a
concrete social formation, that is to say a historical site for
the organization of production, of relations of productions,
and for their reproduction; and this relationship is increas-
ingly given shape in a material and political space beyond
national borders. In this context, whether the aim of political
action is, as Simon Clarke put it, to "bring capital under
social control''95 or, more modestly, to democratize the mak-
ing of monetary policy so that normality does not reign un-
examined, it has to outgrow the narrow boundaries of the
Canadian social formation.
Notes
I am grateful to Robert Cox, Leo Panitch and the SPE reviewers for their
generous comments and friendly assistance.
1. Gerald Bouey, Governor of the Bank of Canada, quoted in Globe
and Mail November 27, 1975, p. B2. See also "Remarks by Gerald
K. Bouey, Governor of the Bank of Canada, to the 46th Annual Meet-
ing of the Canadian Chamber of Commerce," Saskatoon, 22 Septem-
ber 1975, in Bank of Canada Review October 1975, pp. 23-30.
2. Remarks by Milton Friedman at the Milton Friedman Seminar, Mon-
treal, October 2, 1975, quoted in Thomas J. Courchene, Monetarism
and Controls: The Inflation Fighters (Toronto: C.D. Howe Institute,
1976), p. Ill. Ml refers to demand deposits in chartered banks and
)currency held in the hands of the public. It is a narrow representation
of money incorporating only about 15 percent of total bank deposits.
3. "Gradualism" is the label that the Bank of Canada affixed to its own
monetarist policy-mix. On Canadian monetarism as "gradualism," see
Bank of Canada, Annual Report of the Governor to the Minister of
Finance. 1976 (Ottawa, 1977), quoted in Thomas J. Courchene, The
34
Studies in Political Economy
12. 1. Marcus Fleming, "Floating Exchange Rates, Asymmetrical Inter-
vention, and the Management of International Liquidity," in IMF Staff
Papers XXII12 (1uly 1975), p. 276.
13. On neoclassical theory as "mystification with purpose" see Michael
Albert, "Neoclassical Economics Science or Silliness"," Z Magazine
(November 1989), pp. 103-110. Suzanne de Brunhoff refers to this
mystification as "the illusion of monetary policy." The illusion based
on an idealist separation of monetary relations from "real" economic
relations purges monetary policy of its material content and reduces
it to an autonomous and benevolent state action - a technical solution
to a narrowly defined economic problem. Suzanne de Brunhoff, La
politique monetaire un essai d'interpretation marxiste (paris: Presses
Universitaires de France, Collection SUP, 1973), especially "Intro-
duction," pp. 5-15. The "illusion of monetary policy" in Canada is
further nourished by the secrecy surrounding Bank of Canada opera-
tions. In public documents, presentations to the policy community,
and even in declarations to commissions of inquiry, the Bank tradi-
tionally presents policy choices as given, as faits accomplis. Note
for example the following exchange between Louis Rasminsky, Gov-
ernor of the Bank of Canada, and Commissioners James D. Gibson
and Dr. W.A. MacKintosh, who could have been excused for thinking
the Bank of Canada divinely appointed:
Comm. Gibson: It has been suggested that it might be ...helpful
if central bankers could make more precise and detailed statements
of their policy objectives at any given time, or from time to time,
citing specifically what sort of objectives they have in mind in
terms of employment and in terms of prices ... What do you think
of this idea? I would like to hear your comments upon it.
Mr. Rasminsky: Our objectives are eternal! They do not change.
Comm Gibson: But you will not write down specifically what
they are?
Comm Mackintosh: Your methods are extremely temporal.
Mr. Rasminsky: Yes our methods are temporal.
From "Transcript of the Hearing of January 9, 1963" reprinted in
Evidence of the Governor Before the Royal Commission on Banking
and Finance (Ottawa, Supply and Services, May 1964), pp. 3-34.
The ethereal reporting of its activities also contributes to making the
Bank the most obscure and least studied of government agencies.
Commentators who rely on the published documents of the Bank of
Canada are often left speculating over the "scrupulous meaning of
the text" of the Bank of Canada Review and pondering what the
literary style of the Annual Report betrays. See, for example H.S.
Gordon and L.M. Read, "The Political Economics of the Bank of
Canada," Canadian Journal of Economics and Political Science XXIV
(November 1958), pp. 465-482; and E.P. Neufeld, "The Bank of Can-
ada's Approach to Central Banking," Canadian Journal of Economics
and Political Science XXIV/3 (August 1958), pp. 332-344.
15. Ibid., p. 305.
16. Paul A. Volker, "A Broader Role for Monetary Targets," remarks
before the Toronto Bond Trader's Association, Toronto, February 22,
1977. Reprinted in Federal Reserve Bank of New York Quarterly
Review 2 (Spring 1977), p. 26.
36
Studies in Political Economy
Survey January 21, 1974. It was reiterated in the 1974 Outline of
Reform presented at the final meeting of the C20 in June 1974. See
IMF Survey May 20, 1974. The assessment of SDRs in terms of a
Standard Basket was adopted at the Research Department of the Fund
in June of 1974; IMF Survey June 17, 1974.
31. George M. Von Furstenberg, "Internationally Managed Money Sup-
ply," in Robert Z. Aliber, The Reconstitutions of International Mone-
tary Arrangements (Chicago: The MacMillan Press, 1987), pp. 117-
126.
32. David Laidler, "What Remains of the Case for Flexible Exchange
Rates?," (unpublished paper, University of Western Ontario, 1988-
89). On the political difficulties of returning to fixed exchange rates,
see Wilfred J. Ethier and Arthur I. Bloomfield, "The Management
of the Floating Exchange Rates," in Patrick M. Boarman, David G.
Tuerch (eds.), World Monetary Disorder: National Policies vs Inter-
national Imperatives. (New York: Praeger Publishers, 1976), pp. 173-
190.
33. Fred Hirsch, "The Politics of World Money," in The Economist August
5, 1972.
34. On the crisis of the IMF see Richard E. Feinberg and Catherine
Gwin, "Reforming the Fund," in Catherine Gwin et al. (eds.), The
International Monetary Fund in a Multipolar World: Pulling Together
(Washington: Overseas Development Council, 1989).
35. Bank of Canada, Annual Report of the Governor to the Minister of
Finance and Statements of Account for the Year 1981 (Ottawa, 1981),
p.6.
36. David Harvey, The Condition of Postmodemity (Oxford: Basil Black-
well, 1989), p. 103. On the dual nature of money in the international
economy, ("tendance
l
I'unicite et tendance au fractionnement en
monnaies partielles") see Michel Agliena, La fin des devises eles
(Paris: AgalmaILa Decouverte, 1986), pp. 12-43.
37. William Dale, Managing Director of the IMF, quoted by Dennis Sco-
lum, "Tougher Policy Prescribed," Globe and Mail February 26, 1980,
p. B2. See also Jacques De Larosiere's comments in the IMF Survey
October 29, 1979.
38. Robert W. Cox, Production, Power and World Order: Social Forces
in the Making of History (New York: Columbia University Press,
1987), pp. 254-259.
39. Many thanks to the former officials of the Bank of Canada, the IMF,
the OECD and of the BIS who have generously - if anonymously
- helped to shed a bit of light on the shadowy shadow committee.
40. For example, the BIS acted as a secretariat for the Committee of the
Governors of Central Banks of EEC member countries, for a variety
of meetings of EEC experts on monetary questions, for the ministerial
meetings of the G 10, and for the Working Party 3 of the OECD.
41. The seminal article on the St. Louis model is L.C. Anderson, J.L.
Jordan, "Monetary and Fiscal Actions: A Test of their Relative Im-
portance in Economic Stabilisation" in Federal Reserve Bank of St.
Louis Review U11 (n.d.), pp. 11-24. See also Charles Freeman,
"Monetary Aggregates as Targets: Some Theoretical Aspects,"
(Ottawa: Bank of Canada, Department of Monetary and Financial
38
DrainvilleIMonetarlsm
Analysis, July 1981), for an analysis of the impact of the St. Louis
Model on the Bank of Canada's macroeconomic analyses.
42. BIS, Forty-Sixth Annual Review (Basle: June 1976), p. 33.
43. Phil O'Brien and Jackie Rorrick, Chile The Pinochet Decade: The
Rise and Fall of the Chicago Boys (London: Latin American Bureau
1983).
44. Quoted from BIS, Sixty Second Annual Report (Basle: June 1992),
p. 124.
45. "Remarks by Gerald K. Bouey, Governor of the Bank of Canada to
the Business Outlook 1977 Conference of the Conference Board of
Canada, Montreal, 23 Sept 1976" reprinted in Bank of Canada Review
October 1976, pp. 19-24.
46. For a review of technical innovations introduced by chartered banks
after the adoption of Ml as an intermediary target by the Bank of
Canada and on the diminishing relevance of Ml see Thomas J.
Courchene, No Place to Stand? Abandoning Monetary Targets: An
Evaluation (Toronto: C.D. Howe Institute 1983), especially chapter
3. See also L. Landry "Financial Innovation in Canada" in Federal
Reserve Bank of New York Quarterly Review (Autumn 1980), pp.
1-11.
47. On the monetarist refusal to pre-validate see Trevor Evans, "Money
Makes the World Go Round," Capital and Class 24 (Winter 1985),
p.104.
48. R.T. Naylor, Monetarism and Canadian Policy Alternatives (Ottawa:
Canadian Centre for Policy Alternatives 1983), p. 13.
49. On the paramount importance of the controllability of Ml see "Re-
marks by G.E. Freeman, Deputy Governor of the Bank of Canada
to the Banking Symposium Sponsored by the Canadian Council of
Financial Analysts and the Association of Canadian Bank Analysts,
Toronto, November 23, 1976" reprinted in Bank of Canada Review
December 1976, pp. 3-9.
50. See for example Alexandre Lamfallusy "Rules Versus Discretion: An
Essay on Monetary Policy in an Inflationary Environment,"
B.lS.
Economic Papers (Basle: April 1981), p. 47. On the OECD's call
for "a moderate but sustained [monetary] expansion, initially less
rapid than would otherwise be desirable during which memories of
recent inflation fade" see Paul McCraken et al., Towards Full Em-
ployment and Price Stability, quoted in Richard D. French and Rich-
ard Van Loon, How Onawa Decides; Planning and Industrial Pol-
icy-Making 1968-1984 (Toronto: James Lorimer
&
Company Pub-
lishers, 1984), p. 68. The BIS in its 48th Annual report also speaks
of a "policy strategy of gradualism" aimed at reducing inflationary
expectations and at the problems of structural maladjustment." See
BIS, Forty-Eighth Annual Report, p. 52.
51. Facing the Future: Mastering the Probable and Managing the Un-
predictable (Paris: OECD, 1979), p. 78.
52. Douglas Fleming in Budget Speech June 20, 1961, pp. 30-31.
53. Ronald A. Shearer, "The Porter Commission Report in the Context
of Earlier Canadian Monetary Documents," Canadian Journal of Eco-
nomics
XII
(February 1977), pp. 34-49.
54. On the parallelism between Canadian and American interest rates in
the periods of floating see Russel S. Boyer, "Canadian Post-War Bal-
39
Studies in Political Economy
ance of Payments and Exchange-Rate Experience" in Douglas D.
Purvis (ed.), The Canadian Balance of Payments: Perspectives and
Policy Issues (Montreal: Institute for Research on Public Policy
1983), especially pp. 199-205.
55. George S. Watts, "The Bank of Canada During the Period of Postwar
Adjustment" in Bank of Canada Review November 1973, p. 7.
On
state commitments in the post-war period see Louis Rasminsky, "Ex-
ternal Equilibrium as an Objective of Monetary Policy" in James P.
Cairns, H.H. Binhammer and Robert Broadway, Canadian Banking
and Monetary Policy (Toronto: McGraw-Hili Ryerson LTD 1972),
pp.97-1oo.
56. Malcolm Campbell, Grand Illusion: The Politics of the Keynesian
Experience in Canada 1945-1975 (peterborough: Broadview Press
1987), pp. 123-124.
57. David C. Smith and David W. Slater, "The Economic Policy Proposals
of the Governor of the Bank of Canada" in E.P. Neufeld (ed.), Money
and Banking in Canada: Historical Documents and Commentary
(Toronto: McClelland and Stewart, 1964), pp. 320-332.
58. H.S. Gordon, The Economists Versus the Bank of Canada: Why
Twenty-Nine Economics Professors Signed a Letter to the Ministry
of Finance Calling for a Drastic Reorganisation of the Bank of Can-
ada (Toronto: Ryerson Press, 1961), pp. 2-3.
59.
On
the limited role of monetary policy for the purpose of domestic
stabilization in a period of fixed exchange rates see David Laidler,
"International Monetary Economics in Theory and Practice" in John
Sargent
(ed.),
Postwar MacroEconomic Developments, No. 20, Re-
ports to the Royal Commission on the Economic Union and Devel-
opment Prospects for Canada (Toronto: University of Toronto Press,
1986), pp. 234-5.
On
the limits of long-range monetary policy ven-
tures in the Bretton Woods period see G.L. Bach's comments on the
Treasury-Fed crisis of 1965 in Making Monetary and Fiscal Policy
(Washington DC: The Brookings Institution, 1971), pp. 120-126.
60. Harry G. Johnson, Alternative Guiding Principles for the Use of
Monetary Policy, Essays in International Finance, No 14 (Princeton:
Princeton University Press, November 1963), p. 27.
61. Albert Breton and Ronald Wintrobe, "A Theory of 'Moral' Suasion,"
Canadian Journal of Economics X1/2 (May 1978), pp. 210-218.
62. "Remarks by Gerald
K.
Bouey, Governor of the Bank of Canada, to
the Saint John Board of Trade Seminar, Saint John, New Brunswick,
November 26, 1975" reprinted in Bank of Canada Review December
1975, pp. 3-10.
63. "Introductory Remarks by Gerald
K.
Bouey, Governor of the Bank
of Canada, in an Appearance Before the Senate Committee on Na-
tional Finance, 23 March 1982" reprinted in Bank of Canada Review
April 1982, p. 12.
64. Bank of Canada press release of November 19, 1976 reprinted in
Bank of Canada Review December 1976, p.
II.
65. Bank of Canada Review January 1976, p. 17.
66. Bank of Canada press release, March 10, 1980 reprinted in Bank of
Canada Review March 1980, pp. 29-30.
67.
40
-- --------
DrainvilleJMonetarism
"Remarks by Gerald K. Bouey, Governor of the Bank of Canada, to
the Canadian Club of Winnipeg, 8 April 1980," reprinted in Bank of
Canada Review April 1980,
pp.
3-9.
68. Quoted from "Remarks by G.E. Freeman, Deputy Governor of the
Bank of Canada. at the Economic Outlook Conference of the Canadian
Association for Business Economics, Ottawa, 11 May 1978," re-
printed in Bank of Canada Review May 1978, pp. 3-11.
69. "Remarks by Gerald
K.
Bouey, Governor of the Bank of Canada, to
the Men's Canadian Club of Vancouver, 8 November 1978," reprinted
in Bank of Canada Review November 1978, p. 18.
70. "Statement by Gerald
K.
Bouey, Governor of the Bank of Canada,
Before the House of Commons Standing Committee on Finance Trade
and Economic Affairs, 16 May 1978" reprinted in Bank of Canada
Review June 1978, p. 4.
71. Ibid., pp. 3-8.
72. IMF Survey March 14, 1979, pp. 82-85.
73.
Inflation: The Canadian Experience (Ottawa: The Conference Board
of Canada, 1980), p. 66.
74. Arthur W. Donner
&
Douglas D. Peters, The Monetarist Counter-
Revolution A Critique of Monetary Policy (Toronto: James Lorimer
&
Company/Canadian Institute for Economic Policy, 1979), pp. 23-31.
75. Thomas J. Courchene, "The Attack on Monetarism: Muddled and
Misdirected? ," and Douglas D. Peters and Arthur W. Donner, "Mone-
tarism: A Costly Experiment" both in Canadian Public Policy VII
(April 1981, supplemental). .
76. "Canada's Balance of Payments in the 19708: A Perspective," Bank
of Canada Review March 1979, pp. 3-15.
77. Peters and Donner, "Monetarism: A Costly Experiment," pp. 233-238.
78. Bank of Canada press release, 11 April 1980 reprinted in Bank of
Canada Review April 1980, p. 11.
79. Department of Finance press release, 29 July 1981 reprinted in Bank
of Canada Review September 1981, p. 33.
80. BIS, Forty Seventh Annual Report June 1977, pp. 70-71.
81. Alain Lipietz, "The Debt Problem, European Integration and the New
Phase of World Crisis," New Left Review 178 (November-December
1989), pp. 37-50.
82. On the IMF's call for a more "pluralist" policy outlook see, for ex-
ample, IMF Survey February 2, 1982. At the June 1982 meeting of
the G7 in Versailles the joint statement called for a renewed conver-
gence of national economic policies, not on the basis of monetary
targeting but of policies of "renewed growth" and on the cooperative
stimulation of employment. See IMF Survey June 21, 1982, pp. 177-
189. On renewed calls for pluralism and discretion in monetary policy
see also BIS, Fifty Third Annual Report June 1983.
83. Gerald Bouey, "Monetary Policy: Finding a Place to Stand" (the 1982
Per Jacobsson Lecture); Reprihted in Bank of Canada Review Sep-
tember 1982, p. 16. On the same topic see also Gerald Bouey's re-
marks to the Canadian Club, Toronto, 29 November 1982 and to the
Senate Committee on National Finance, December 1982, both re-
printed in the Bank of Canada Rev~w December 1982.
84. On this subject see the diagnosis of Johannes Witteveen, former Man-
aging Director of the IMP, quoted in Susan Strange, "Interpretation
41
Studies in Political Economy
of a Decade" in Loukas Tsoukalis (ed.), The Political Economy of
International Money: In Search of a New Order (London: Sage Pub-
lication for the Royal Institute of International Affairs, 1985), p. 25.
85. Thomas J. Courchene No Place to Stand? Abandoning Monetary Tar-
gets: An Evaluation (Toronto: C.D. Howe Institute 1983), p. 6.
86. Stephen Gill, "The Emerging World Order and European Change:
The Political Economy of European Union" in Ralph Miliband and
Leo Panitch (eds.), Socialist Register 1992: New World Order? (Lon-
don: Merlin Press 1992), pp. 157-196.
87. William K. Carroll, "Neoliberalism and the Recomposition of Finance
Capital in Canada," Capital and Class 38 (Summer 1989), p. 99.
88. Bank of Canada, Annual Report of the Governor to the Minister of
Finance and Statements of Account for the Year 1982 (Ottawa: 1983),
p.8.
89. John W. Crow, "The Work of Canadian Monetary Policy" (Eric J.
Hanson Memorial Lecture, University of Alberta, Edmonton, January
18, 1988) reprinted in Bank of Canada Review February 1988, p. 4.
On price stability see Richard G. Lipsey, Zero Inflation: the Goal
of Price Stability (Toronto: C.D. Howe Institute 1990).
90. Bank of Canada, Annual Report of the Governor to the Minister of
Finance and Statements of Accountfor the Year 1991 (Ottawa: 1992),
p. 31.
91. Bank of Canada, Annual Report of the Governor to the Minister of
Finance and Statements of Account for the Year 1992 (Ottawa: 1993),
p.8.
92. The Globe and Mail December 23, 1993, p. 1.
93. Jean-Marie Dufour and Daniel Racette, "Monetary Control in Canada"
in John Sargeant (research coordinator), Fiscal and Monetary Policy
No. 21, Reports to the Royal Commission on the Economic Union
and Development Prospects for Canada (Toronto: University of
Toronto Press, 1986).
94. Manfred Bienefeld, "Financial Deregulation: Disarming the Nation
State" in Studies in Political Economy 37 (Spring 1992), pp. 31-58.
On the internationalization of the state ("a. ..process whereby national
policies and practices have been adjusted to the exigencies of the
world economy of international production" as well as a "process of
inter-state consensus formation regarding the needs or requirements
of the world economy that takes place within a common ideological
framework"), see Cox, Production Power and World Order, pp. 253-
254.
95. Simon Clarke, Keynesianism Monetarism and the Crisis of the State
(Hants: Edward Elgar 1988), p. 6.
42
-- --- ------------------
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