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 ?
If Friedmanite monetarism was anything, it was naive about political economy.
1) aptly sums up the movement: "Market Monetarism is the first economic school to be born out of the blogosphere.
One reason for not recounting or criticizing Jones's broader history of neoliberalism--and especially of its most prominent feature, monetarism--is that his account is thorough and, as far as I know, largely error-free, as is his case study of monetarism's embrace on both sides of the Atlantic.
Instead, as Jones writes, "the terrible prevailing economic conditions ensured that monetarism, deregulation, and trade union reform acted as Trojan horses for a more polemical neoliberal faith in free markets."
This case, therefore, did not confirm objections of monetarism advocates who claim that the effects of monetary-policy measures on interest rates in the financial markets are ambiguous.
Congdon also has a lot to say about the relationship between monetary and fiscal policy and broader questions about the role of government: "As its critics understood, monetarism was not--and is not--politically neutral.
The old heavy industries - coal, steel, shipbuilding - were being sacrificed on the altar to monetarism.
This took the form of a public crusade with three, related components: first, a diagnosis of the problem, that prioritised inflation over unemployment; second, the promotion of monetarism as a common-sense solution; and third, an overarching narrative, that pinned the blame decisively on her opponents.
Keynesian macroeconomics was already being marginalised by monetarism, which would itself rapidly succumb first to New Classical macroeconomics and then to the New Neoclassical Synthesis, the latter involving the virtual liquidation of macroeconomics in favour of representative agent microeconomics.
The USA is going for a Keynesian growth model, while the UK is applying monetarism and cutting back on debt (you've probably noticed).
What reminds me of Margaret Thatcher is that in her time she declared that there was no alternative to the policy she introduced of monetarism.