What Is a Monetarist?

A monetarist is an economist who holds the strong belief that 澳洲幸运5官方开奖结果体彩网:money supply—including physical currency, deposits, and credit—is the primary factor affecting demand in an economy. Consequently, the economy's performance—its growth or contraction—can be regulated by changes in the money supply.

The key driver behind this belief is the impact of 澳洲幸运5官方开奖结果体彩网:inflation on an economy's growth or health𓆏 and the idea that by controlling the money supply, one can control the inflation rateꦰ.

Understanding Monetarists

At its core, 澳洲幸运5官方开奖结果体彩网:monetarism is an economic formula. It states that money supply multiplied by its velocity (the꧑ rate at which money changes hands in an economy) is equal to nominal expenditures in the economy (goods and services) multiplied by price. While this makes sense, monetarists say velocity is generally🐬 stable, which has been debated since the 1980s.

The most well-known monetarist is 澳洲幸运5官方开奖结果体彩网:Milton Friedman, who wrote the first serious analysis using monetarist theory in his 1963 book, A Monetary History of The United States, 1867–1960. In the book, Friedman along with Anna Jacobson Schwartz argued in favor of monetarism as a way to combat the economic impacts of inflation. They argued that a lack of money supply amplified the financial crisis of the late 1920s and led to the 澳洲幸运5官方开奖结果体彩网:Great Depression, and that a steady increase in the money supply in line with growth in the economy would produce growth without inflation.

The monetarist view was a minority view in both academic and applied economics until the financial troubles of the 1970s. As unemployment and inflation soared, the dominant economic theory 澳洲幸运5官方开奖结果体彩网:Keynesian economics w🌃as unable to explain the current economic puzzle presented by economic contraction and simultaneous inflation.♌

Keynesian economics said that high unemployment and economic contraction would lead to deflation through a collapse in demand and conversely that inflation was the result of demand outstripping supply in an over-heated economy. The final collapse of the gold standard in 1971, the oil shocks of the mid-1970s, and the beginning of de-industrialization in the United States in the late 1970s all contributed to 澳洲幸运5官方开奖结果体彩网:stagflation, a new phenomenon that was difficult for Keynesian economics to explain.

Monetarism, however, argued that restricting the money supply would kill inflation, which would be a necessary step to regulating the economy even if it came at the cost of a short-term recession. That is exactly what Paul Volcker, the head of the Federal Reserve from 1979 to 1987, did. Thไe result was a final vindication of monetarism in the eyes of economists and polic💮ymakers.

Examples of Monetarists and Monetarism

Most monetarists opposed the 澳洲幸运5官方开奖结果体彩网:gold standard in that the limited𒀰 supply of gold would stall the amount of money in the system, which would lead to inflation, something monetarists believe should be controlled by the money supply, which is not possible under the gold standard unless gold is continually mined.

Milton Friedman is the most famous monetarist. Other monetarists include former Federal Reserve Chair 澳洲幸运5官方开奖结果体彩网:Alan Greenspan and former British Pri🦋me Minister Margaret Thatcher.