I have always been impressed by the contribution of my compatriot, Jean Bodin, to our understanding of monetary economics. Drawing on his experience of the inflationary consequences of the influx of precious metals from the Americas into 16th-century Europe, Bodin postulated a direct relationship between the quantity of monetary gold and silver in circulation and the general price level. Thus was born the quantity theory of money, which has survived to this day.

Or has it? Over the next two days, the European Central Bank will host a conference to discuss the role of money in monetary policymaking. At present, the dominant academic view seems to be that monetary aggregates should have no part in monetary policy decisions. From this perspective, money does not deserve to be central to one of the two “pillars” of the ECB’s monetary policy strategy. I do not share this view. In this I follow Friedrich Hayek, who wrote in The Pure Theory of Capital: “It is self-contradictory to discuss a process [inflation] which could not take place without money and at the same time to assume that money is absent or has no effect.”