Monetarism

Monetarism is a set of views concerning the determination of national income and monetary economics. It focuses on the supply and demand for money as the primary means by which economic activity is regulated. Monetary theory focuses on money supply and on inflation as an effect of the supply of money being larger than the demand for money.

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Monetarism is based on the work of Milton Friedman, who was among the generation of conservative economists to accept Keynesian economics and then critique it on its own terms. Friedman and Anna Schwartz wrote an influential book on the monetary history of the United States, and argued that "inflation is always and everywhere a monetary phenomenon." Friedman advocated a central bank policy aimed at keeping the supply and demand for money at equilibrium, as measured by growth in productivity and demand. Many monetarists back, or at least are sympathetic to, a return to some form of gold standard as a way of preventing misallocation of capital and preventing fiat money from being inflated, since their view is that government action is at the root of inflation. Milton Friedman is not one of these, however; he views the gold standard as highly impractical. The current head of the United States Federal Reserve, Alan Greenspan, is generally regarded as monetarist in his policy orientation.

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Critics of monetarism include both neo-Keynesians who argue that demand for money is intrinsic to supply, and some conservative economists who argue that demand for money cannot be predicted. Joseph Stiglitz has argued that the relationship between inflation and money supply growth is equivocal for ordinary inflation, as opposed to rapid inflation (meaning perhaps more than 10% year-over-year) which is almost universally regarded as an effect of government spending at a time when output growth can not absorb it. (See inflation by government spending)

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Though monetarism is commonly associated with conservative economics and economists, not all conservatives are monetarists, and not all monetarists are conservatives.

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National income: REDIRECTMeasures of national income and output...

Economics: Economics (from the Greek οίκος , 'house', and νομος , 'rule', hence "household management") is a social science that studies the production, distribution, trade and consumption of goods and services. Economics is said to be positive when it tries...

Money supply: Money supply ("monetary aggregates", "money stock"), a macroeconomic concept, is the quantity of money available within the economy to purchase goods, services, and securities....