Towards a Stable Monetary Policy

Ronald Reagan was elected on the basis of a dramatically different philosophy: The belief that the free market offered the best vehicle for the efficient allocation of scarce resources and that government intrusion in the economy, in all its forms, should be minimized. The pragmatic application of this philosophy took the form of a four point program. The first plank recognized that resources were being wasted because government was preempting activities better performed by the private sector. Thus, the level of real government expenditure had to be cut back, in order to decrease the amount of resources being extracted from the market. It was also recognized that the method by which government expenditures were financed was, itself, a source of disruption. The second plank dictated that the tax system be reformed so as to minimize the distortion of market information. Similarly, excessive cost inefficient regulation was inhibiting economic growth. The third portion of the program addressed this problem. Finally, it was recognized that markets could not function efficiently without a stable means of exchange. Volatile monetary policy had seriously undermined the ability of markets to function, and the President called for a slow, stable monetary policy