monetarism

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Related to Monetarist Theory: Rational Expectations Theory

monetarism,

economic theory that monetary policy, or control of the money supply, is the primary if not sole determinant of a nation's economy. Monetarists believe that management of the money supply to produce credit ease or restraint is the chief factor influencing inflationinflation,
in economics, persistent and relatively large increase in the general price level of goods and services. Its opposite is deflation, a process of generally declining prices. The U.S.
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 or deflation, recession (see depressiondepression,
in economics, period of economic crisis in commerce, finance, and industry, characterized by falling prices, restriction of credit, low output and investment, numerous bankruptcies, and a high level of unemployment.
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) or growth; they dismiss fiscal policy (government spending and taxation) as ineffective in regulating economic performance. Milton FriedmanFriedman, Milton
, 1912–2006, American economist, b. New York City, Ph.D. Columbia, 1946. Friedman was influential in helping to revive the monetarist school of economic thought (see monetarism).
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 was the leading modern proponent for monetarism.

monetarism

a school of thought in economics and in politics that sees control of the money supply as the key to the management of the economy Monetarists emphasize the need to match the supply of money (including credit) to the capacity of the economy to produce goods and services, if INFLATION is to be controlled and stop-go economic growth avoided. As well as having been a fashionable but controversial theory in academic ECONOMICS (compare KEYNESIAN ECONOMICS), monetarism has also been widely employed in the 1980s by Western governments. It provides a rationale for control of the economy through control of the money supply, including the control of rates of interest, and has also been used as justification for control of state expenditures, and thus the state borrowing which creates credit. The adoption of monetarism was an outcome of the seeming failure of Keynesian economics to prevent high inflation and high unemployment, a loss of international competitiveness and a squeeze on profits. All of these were suggested to be the result of an OVERLOAD ON THE STATE and the escalation of state expenditures.

The issues to which monetarism relates are not only a matter of monetary relations and fiscal policy, or the interests of nation states. Rather, as suggested long ago by MARX, such issues also involve the complex competing interests of multiple groups and classes, internationally as well as within nations. See also HABERMAS, THATCHERISM.

monetarism

1. the theory that inflation is caused by an excess quantity of money in an economy
2. an economic policy based on this theory and on a belief in the efficiency of free market forces, that gives priority to achieving price stability by monetary control, balanced budgets, etc., and maintains that unemployment results from excessive real wage rates and cannot be controlled by Keynesian demand management
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References in periodicals archive ?
The second point of attack was reducing the money supply and this is the core of monetarist theory.
Employment Minister Mr Andrew Smith was quick out of the blocks to dismiss that monetarist theory.
Monetarist theory is based on the assumption that the number and velocity of transactions is directly related to the size of the money supply.
Though many of the book's passages more than hint at an Austrian storyline, the authors rely explicitly on monetarist theory, which features the quantity theory of money (more accurately rendered as the "quantity-of-money theory of the price level").
They are driven by dogma -- the monetarist theory -- more than anything else.