Monetized government Debt as a percentage of the broadly defined money supply and the rate of inflation Canada 1950 to 1989

Posted on October 8, 2014 by haroldchorneyeconomist

I am reproducing the following table of data because of its importance in showing that there is no necessary correlation between the percentage of debt that is monetized as a proportion of the broadly defined money stock
and the rate of inflation, contrary to the conventional wisdom. There were years when the central bank held a much smaller proportion of the debt in relation to the money stock and the rate of inflation was higher and there were years when the proportion monetized was much greater and the rate of inflation was very low. My motivation in researching this relationship was wanting to show that Keynesian deficits would not necessarily result in interest rate crowding out as many monetarists claimed and to ensure that this would not happen the central bank had the power and the policy room to keep rates low to allow fiscal stimulus to do its work in reducing unemployment. I first wrote about the issue in 1984 and published the table in the beginning of the 1990s. Our recent experience in the U.S. with a large rise in the percentage of the debt that is monetized through quantitative easing and the stability of low inflation should reinforce the argument that there is no necessary connection provided the level of monetization is within certain limits. Inflation is not a black box experience. Rather it like unemployment is a complex phenomenon in which the structure of markets, the degree of oligopoly power and the strength of trade union wage negotiating power all must be factored in.

Table 3:
Monetized government Debt as a percentage of the broadly defined money supply and the rate of inflation Canada 1950 to 1989.
YEAR
Percentage
Rate of inflation
1989
7.5
3.6
1988
8.3
4.0
1987
9.1
4.5
1986
8.7
2.9
1985
8.3
3.2
1984
9.6
3.5
1983
9.8
5.4
1982
8.8
10.4
1981
10.1
10.6
1980
10.9
11.4
1979
10.3
10.3
1978
10.6
6.4
1977
10.7
7.0
1976
9.9
9.5
1975
11.1
10.7
1974
11.6
15.3
1973
12.0
9.1
1972
12.7
5.0
1971
13.0
3.2
1970
13.6
4.6
1969
14.3
1.1
1968
14.4
3.3
1967
15.8
4.0
1966
16.4
4.4
1965
17.5
3.3
1964
17.6
2.4
1963
18.6
1.9
1962
19.2
1.4
1961
19.4
0.4
1960
19.7
1.3
1959
20.3
2.0
1958
20.2
1.5
1957
20.6
2.1
1956
21.5
3.7
1955
21.2
0.6
1954
22.0
1.6
1953
23.7
-0.2
1952
23.9
4.4
1951
25.0
11.3
1950
22.9
2.4
Source: Calculated from the Bank of Canada Monthly Review and the Canadian Department of Finance Quarterly and Annual reviews 1950 to 1989. The table first appears in Harold Chorney ‘’A Regional Approach to Monetary and Fiscal Policy’’ in J.McCrorie and M.Macdonald, The constitutional future of the Prairie and Atlantic Regions of Canada, Canadian Plains Research Centre, University of Regina, 1992. It is also discussed and reproduced in Harold Chorney ‘Debts, Deficits and Full Employment’’ in D.Drache and R.Boyer, States against Markets:The Limits of Globalization, Routledge, 1996  and the approach as a policy tool in The Deficit:Hysteria and the Current Crisis, The Canadian Centre for Policy Alternatives, Ottawa: 1984, which is largely reproduced in my collection of essays with P.Hansen, Toward A Humanist Political Economy, Montréal&N.Y. Black Rose Press,1992.
My colleagues the late John Hotson of Waterloo and Mario Seccareccia of the Université d’Ottawa also co-authored one of the publications, a pamphlet which sought to popularize the argument entitled The Deficit Made Me Do It.

About haroldchorneyeconomist

I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
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