Quite unaided by Parliamentary hearings, exporters' lobbies, premiers' communiques or any of those vital elements without which our economy would surely cease to function, the prime rate has begun to fall.

Bank of Montreal's 50-basis-point cut is prima facie evidence of competition in the banking industry. This should be recalled the next time someone rises on their hind legs to bark about the high cost of credit cards and canceled cheques: If there's no collusion, what's your complaint?

It should not also escape notice that the reduction in the prime, the first since 1987, comes at a time when monetary policy is said to be exceedingly tight. Indeed, the period Prof. David Laidler identifies in his celebrated recent paper for the C.D. Howe Institute as marking the switch from too-loose to too-tight - the second quarter of this year - corresponds neatly with the beginning of the bank rate's current seven-week decline.

That may reflect a weakened real demand for credit, or it may be a marking- down of the premium for expected inflation. Either way, the message should sink in: The way to lower rates in an inflationary environment is through tighter policy, not looser. Rates rose all through 1989 and into the first part of this year, when growth in the broad money aggregate M2 was averaging 14% per annum.

CHEERS AND TOSSED CAPS

Laidler's sudden defection to the looser-money camp - just last May, he was giving the all's-well on the same letterhead - has met with cheers and tossed caps from the weary veterans of the siege of the Bank of Canada. Vindication!  they exult, from one of the Bank's stoutest defenders.

It is nothing of the kind. Except in the trivial matter of whether Bank policy at this moment is too tight or too loose, Laidler's case is their antithesis.

Where most of the Bank's critics call for cheaper money as a means of propping up the real economy, Laidler explicitly rejects any attempt to peg monetary policy to real growth objectives. The only thing the Bank should be targeting, he insists, is the money supply, holding its rate of growth to that consistent with a noninflationary rate of growth in nominal output.

It is the sharp slowdown in the monetary aggregates in recent months that is Laidler's concern, not the unemployment rate. Unlike most of the easy-money lobby, Laidler would probably be willing to risk recession for the sake of zero inflation. He demurs only at the point of deflation. In other words, money supply growth is slower than needed to stabilize prices. That is the limit of his concern. Those who now clasp the professor to their bosom might like to know his preferred policy regime - the same as it was six months ago. Ah, February. The Bank rate at 13%, the dollar at 83 cents: those were the days.

Even on the professor's own terms, it's not clear the situation is quite so alarming as his hyper-ventilating rhetoric about an ''unavoidable depression'' would suggest. Laidler places rather more emphasis on the narrow money measure M1 than most monetary economists would these days, which is where the really sharp contraction has been observed: minus 17% annualized over the last three months. M2, the aggregate the Bank of Canada follows most closely, is off a more sedate 1.5% in the same period. Year-on-year, it's up 8%.

At any rate, the instant monetarists who are now quoting him in support of their perennial campaign for ease might be a little more consistent. I don't remember too many of them worrying publicly about several years of M2 growth in excess of the 5% Laidler thinks consistent with zero inflation. But let it slip below for a few weeks, and everyone shouts aha!  

The interesting question is not ''Why is Bank policy so tight?'' but ''Why is it so erratic?'' A swoop from plus 14% to minus 1.5% in the space of a few months is hardly evidence of the Bank's alleged devotion to monetarist dogma. This may be deliberate. The Bank's minutes reveal a preoccupation with supporting the C$ and stabilizing interest rates. Unfortunately, that means giving up control of the money supply (the same reason the C$ should not be driven down).

Or maybe the Bank can't help it. Goodhart's Law, named for former Bank of England economist Charles Goodhart, holds that any observed relationship between a given monetary aggregate and nominal output breaks down the moment you try to harness it for policy purposes. The Bank's M2 target may have become distorted by virtue of attempts to control it, as private agents seek to evade this discipline by switching into and out of particular assets. But if that is so, then we have no more reason to fear an undershoot than an overshoot.