The credit crisis is producing some odd bedfellows. Take Tim Congdon, who is one of our more hair-shirted monetarists. Congdon has been one of the leading supporters (and intellectual authors, if some are to be believed) of the quantitative easing policy pursued by the treasury and the Bank of England. This lines him up alongside those he would usually count as his intellectual foes—the Keynesians and big government men.
This does not mean that Congdon has cut all his intellectual anchors. Nor has he become enamoured of the monetary policies pursued by Gideon Gono, the central bank governor of Zimbabwe, whose banknotes now bear expiry dates. Quantitative easing is the application of a monetary solution to a monetary problem—namely how to maintain stable inflation when prices are falling and interest rates cannot fall below zero. In pursuing it, Congdon has thus remained broadly true to his own principles. They have simply come into alignment with those of others. This unholy alliance is of course temporary. It will fall apart when we move from quantitative easing to quantitative tightening (when the money that has been “printed” is withdrawn and incinerated) when I expect Congdon’s hairshirt to make its reappearance.