monetarism


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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 ?
50) In early 1987, Friedman returned to this theme, criticizing Volcker's current "seat of the pants" policy and claiming of 1979-82 that "If somebody had wanted deliberately to discredit monetarism they would have done what Volcker did" (FT, 02/23/87).
So when I considered topics for the Homer Jones Lecture, I thought of monetarism and the role of money.
After monetarism, Keynesianism, "post" versions of each, macroeconomics settled down for a time to aim at one target, inflation, with one gun, the short-term interest rate.
Why is it that 30 years ago every economic commentator embraced monetarism yet today no one with half a brain in their head would give it house room?
ON my last visit to the North, I was taken by Alan Dixon's letter criticising monetarism and calling for a return to Keynesian economics (Voice of the North, October 21).
Although the Tories in the past have brought us such delights as the poll tax, monetarism, negative eguity and riots, I am the first to admit that they have produced some of our greatest prime ministers such as Winston Churchill, Benjamin Disraeli and, er, Winston Churchill.
THE easily indoctrinated men and women of the 80s, trained in the severe ways of monetarism and duty by Margaret Thatcher's government, seem older and more grimly sensible.
Monetarism was rooted in the Quantity Theory of Money.
Writing about the 20-year period as a whole, one paper saw the Bank as leaning towards monetarism of the Friedman type, but another claims that the Bank's target variable was usually the rate of interest rather than the quantity of money, while a third finds the direction of causation as running from the real economy to the money supply, which would be the "wrong" direction of causation - in the Fisher equation of exchange, a movement from Y (or T) to M, rather than the reverse.
He discusses, of course, the essential links between Free Marketry and Monetarism and what is now called the 'short-termism' of the Anglo-Saxon system.
One of the minor but important side effects of this conflict was that it facilitated the rise of monetarism.
The debate over the ongoing crisis has polarised around traditional theories like Keynesianism or monetarism.