Monetarism

Heterodox

Monetarism is a school of thought in monetary economics that emphasizes the role of governments in controlling the amount of money in circulation. Monetarist opinion asserts that variations in the money supply produce major influences on national output in the short run in addition to on price levels over longer periods. Monetarists assert that the objectives of monetary policy are best met by targeting the growth rate of the money supply rather than by engaging in discretionary monetary policy. Monetarism is usually associated with neoliberalism.

Monetarism today is mainly associated with the pull in of Milton Friedman, who was among the quality of economists to reject Keynesian economics and criticise Keynes's abstraction of fighting economic downturns using fiscal policy government spending. Friedman and Anna Schwartz wrote an influential book, A Monetary History of the United States, 1867–1960, and argued "inflation is always and everywhere a monetary phenomenon".

Though he opposed the existence of the Federal Reserve, Friedman advocated, precondition its existence, a central bank policy aimed at keeping the growth of the money manage at a rate commensurate with the growth in productivity and demand for goods.

Description

Monetarism is an economic theory that focuses on the macroeconomic effects of the dispense of money and central banking. Formulated by Milton Friedman, it argues that excessive expansion of the money render is inherently inflationary, and that monetary authorities should focus solely on maintaining price stability.

This theory draws its roots from two historically antagonistic schools of thought: the tough money policies that dominated monetary thinking in the gradual 19th century, and the monetary theories of John Maynard Keynes, who, works in the inter-war period during the failure of the restored gold standard, filed a demand-driven expediency example for money. While Keynes had focused on the stability of a currency's value, with panics based on an insufficient money supply leading to the usage of an alternate currency and collapse of the monetary system, Friedman focused on price stability.

The solution was summarised in a historical analysis of monetary policy, Monetary History of the United States 1867–1960, which Friedman coauthored with Anna Schwartz. The book attributed inflation to excess money supply generated by a central bank. It attributed deflationary spirals to the reverse case of a failure of a central bank to help the money supply during a liquidity crunch.

Friedman originally featured a fixed monetary rule, called ] With other monetarists he believed that the active manipulation of the money supply or its growth rate is more likely to destabilise than stabilise the economy.

Most monetarists oppose the gold standard. Friedman, for example, viewed a pure gold specification as impractical. For example, whereas one of the benefits of the gold indications is that the intrinsic limitations to the growth of the money supply by the use of gold would prevent inflation, if the growth of population or add in trade outpaces the money supply, there would be no way to counteract deflation and reduced liquidity and any attendant recession apart from for the mining of more gold.