# George Tavlas on the History of Monetarism | Capitalism and Freedom

Source: https://www.youtube.com/watch?v=ISoDNunkBr0
Recap page: https://rapidrecap.app/video/ISoDNunkBr0
Generated: 2025-11-10T21:42:06.516+00:00

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## Quick Overview

George S. Tavlas discusses the history of monetarism, emphasizing that the failure of central banks to actively manage money supply and interest rates during periods of high inflation, particularly in the 1970s and early 1980s, led to the eventual adoption of the Taylor Rule and a greater focus on inflation targeting by central banks, even though he notes his own early work on the topic was initially rejected by the Journal of Political Economy.

**Key Points:**
- George S. Tavlas served as an alternate on the Governing Council of the European Central Bank from 2013 to 2020 and was previously an advisor to the Bank of Greece during the Greek debt crisis (2008-2015).
- Tavlas's early academic work in 1972 on the history of monetary thought, which favored flexible exchange rates over fixed ones, was rejected by the Journal of Political Economy editor, who was an advocate for the Chicago school of monetarism.
- The primary lesson from the Eurozone crisis is that countries must maintain their own fiscal policies, as the lack of fiscal union made the monetary union vulnerable to crises like Greece's.
- The failure of central banks to actively manage money supply (M3 growth) and interest rates during the high inflation of the 1970s and early 1980s demonstrated the limitations of pure monetarism.
- The subsequent focus shifted to the Taylor Rule and inflation targeting as the primary tools for central banks to manage the economy, moving away from strict money supply rules.
- Tavlas notes that Volcker's Fed, unlike some earlier monetarists, correctly applied active monetary policy to bring inflation down during the late 1970s/early 1980s.

![Screenshot at 00:01: Title card for the Hoover Institution podcast "Capitalism and Freedom in the Twenty-First Century," featuring George Tavlas discussing the History of Monetarism.](https://ss.rapidrecap.app/screens/ISoDNunkBr0/00-00-01.png)

**Context:** This interview features George S. Tavlas, Distinguished Visiting Fellow at the Hoover Institution, discussing the history and evolution of monetarism in economic policy. Tavlas shares personal anecdotes from his career, including his experience at the Bank of Greece during the Eurozone crisis and his early academic struggles to publish work critical of pure monetarist doctrine, setting the stage for a broader discussion on central banking tools and historical economic challenges.

## Detailed Analysis

George S. Tavlas recounts his career trajectory, noting his early life as a Greek immigrant to the US and his education at Wister Academy and NYU, where he developed an early interest in economics that led him to study the history of monetary thought. He recounts the difficulty he had publishing his early work, which questioned strict monetarism, as the editor, influenced by Milton Friedman, rejected it in favor of Chicago School views. Tavlas then shifts to his professional career, including serving at the Bank of Greece during the Greek debt crisis (2008-2015) and as an alternate on the ECB Governing Council. He highlights the Eurozone's structural weakness: having a monetary union without a fiscal union, which made it vulnerable during the crisis. Tavlas argues that the failure of central banks to actively manage money supply and interest rates during the high inflation of the 1970s and 1980s discredited pure monetarist rules like MV=PQ. He contrasts this with Paul Volcker's Fed, which successfully used active policy to curb inflation. The discussion concludes with the idea that modern central banks, having learned from this history, favor flexible exchange rates and inflation targeting (like the 2% target) over rigid money supply rules, although Tavlas suggests that the debate between rules-based and discretion-based policy remains relevant.

### Early Life and Academic Setbacks

- Tavlas was born in Massachusetts to Greek immigrants; his father wanted him to join the family business, but Tavlas pursued economics, enrolling at Wister Academy and later NYU; his early paper criticizing rigid monetarism was rejected by the JPE editor influenced by Friedman.
- 01:06-02:51

### Career and the Eurozone Crisis

- Tavlas served at the Bank of Greece during the debt crisis (2008-2015) and as an alternate on the ECB Governing Council; he points out the Eurozone's structural flaw (monetary union without fiscal union) which made countries like Greece vulnerable.
- 00:25-00:47, 07:56-09:34

### The Failure of Pure Monetarism

- The high inflation of the 1970s and 80s showed that money supply growth (M3) was not a stable or reliable indicator for policy, leading to the discrediting of strict monetarist rules like MV=PQ.
- 02:03-04:44

### The Rise of Inflation Targeting

- Volcker's Fed successfully used active policy to fight inflation, shifting the emphasis to inflation targeting (like 2%) as the primary policy tool, often using interest rates.
- 05:04-08:15, 44:14-45:14

### The Legacy of Monetarism

- Monetarism's historical failure in the 70s/80s led to the academic debate between rigid rules (like a monetary growth rule) and discretion, with most modern central banking favoring discretion to manage shocks.
- 03:18-04:04, 04:04-05:05, 08:16-09:45, 09:45-10:27

![Screenshot at 00:01: Title card for the Hoover Institution podcast "Capitalism and Freedom in the Twenty-First Century," featuring George Tavlas discussing the History of Monetarism.](https://ss.rapidrecap.app/screens/ISoDNunkBr0/00-00-01.png)
![Screenshot at 00:20: Split screen showing host Jon Hartley \(right\) and guest George S. Tavlas \(left\), identifying Tavlas as former Alternate Governor of the Bank of Greece.](https://ss.rapidrecap.app/screens/ISoDNunkBr0/00-00-20.png)
![Screenshot at 01:00: Close-up on George S. Tavlas speaking, set against a background of framed pictures and books.](https://ss.rapidrecap.app/screens/ISoDNunkBr0/00-01-00.png)
![Screenshot at 01:42: Tavlas recounts his early education, pointing to his experience at Wister Academy.](https://ss.rapidrecap.app/screens/ISoDNunkBr0/00-01-42.png)
![Screenshot at 02:20: Tavlas gestures while discussing a major event that influenced his early understanding of economics.](https://ss.rapidrecap.app/screens/ISoDNunkBr0/00-02-20.png)
![Screenshot at 03:36: Tavlas uses his hands to emphasize a point while discussing his family's reaction to his career choice.](https://ss.rapidrecap.app/screens/ISoDNunkBr0/00-03-36.png)
![Screenshot at 04:48: Tavlas gestures with both hands while discussing the differing views on central bank policy effectiveness.](https://ss.rapidrecap.app/screens/ISoDNunkBr0/00-04-48.png)
![Screenshot at 06:16: Tavlas uses a hand gesture to illustrate a point about European Union structure.](https://ss.rapidrecap.app/screens/ISoDNunkBr0/00-06-16.png)
![Screenshot at 08:21: Tavlas appears frustrated while describing his early career challenges at the IMF.](https://ss.rapidrecap.app/screens/ISoDNunkBr0/00-08-21.png)
![Screenshot at 09:54: Tavlas discusses the failure of pure monetarism following the high inflation of the 1970s.](https://ss.rapidrecap.app/screens/ISoDNunkBr0/00-09-54.png)
![Screenshot at 13:17: Tavlas uses a hand gesture to illustrate a point about the Greek debt crisis.](https://ss.rapidrecap.app/screens/ISoDNunkBr0/00-13-17.png)
![Screenshot at 34:22: Tavlas recounts the debate between Volcker and Friedman regarding monetary policy during the Great Depression era.](https://ss.rapidrecap.app/screens/ISoDNunkBr0/00-34-22.png)
![Screenshot at 48:21: Tavlas uses hand gestures while explaining the role of monetary policy vs. fiscal policy during the Greek crisis.](https://ss.rapidrecap.app/screens/ISoDNunkBr0/00-48-21.png)
![Screenshot at 54:17: The final transition screen for the podcast, showing the title and Hoover Institution branding.](https://ss.rapidrecap.app/screens/ISoDNunkBr0/00-54-17.png)