Monetarism is a branch of economic thought and studies how money affects the economy. Certainly, money is a fundamental part of the economic structure. Moreover it is essential to carry out commercial exchanges, acquire materials for production. Actually it is even vital to pay wages.
It goes back to the eighteenth century, when many authors, including Richard Cantillon and David Hume, explained it. Also how the increase in the amount of money could affect prices.
Monetarism as we know it today is also a school of economic thought that has developed thanks to John Stuart Mill, who made well-known studies on money. Also the amount of money in circulation, the speed of circulation. Hence also the general dependence on prices.
What is the Monetarist Approach?
To begin with, the monetarists share the classical and neoclassical view of the economy with respect to economic equilibrium. Especially as regards the basis of whether the money supply is equated with the demand for liquidity, prices will remain stable.
In their approach also defend concepts such as the free market. However, they add that it is the task of governments to maintain economic stability. So it is worth noting that the monetarists do not adhere to the idea of other currents to use methodological individualism. Its full focus is on studying and analyzing the demand for money and everything related to the money supply.
To fully understand monetarism it is necessary to know the foundations of those who had the most influence in this current of thought. So such is the case of this Hungarian economist, who completely distrusted the state in economic matters and a faithful believer in free markets.
He was a great defender of the theories of monetarism and an exponent of modern monetarism in the Chicago school. His ideas centered the value of private property as a means of exchange. Moreover it is worth noting that he was a great critic of all Marxist doctrine. Hence looked for ways to eliminate those barriers that prevented a greater income of goods and services in some countries.
The Cambridge Group
It refers to a group of economists who belonged to the neoclassical currents of economic thought. Actually who, as the name implies, belonged to the prestigious University of Cambridge.
They and those were influenced by their theories and thoughts. Actually who assure that the value of money is beyond their function of allowing transactions and commercial exchanges. However it can also have a function to preserve the value between the different transactions.
Irving Fisher and Monetarism
Considered the flagship economist of the United States of America and recognized author of The Theory of Interest. And adds to the theories of many other thinkers and economists of monetarist theories the world-known exchange equation. Another fact about this great economist is the well-known Fisher effect, which describes the rate of inflation that is anticipated on the interest rate.
Knowing some of its most outstanding exponents we can describe some of the measures. Basically that this current of thought presents with respect to economic measures.
The most important Author of Monetarism
Monetarism, as we can see, has had great thinkers and outstanding men. However in modern times the Nobel Prize for Economics stands out in 1976, which contributed to this current economic thought with the theory of permanent income. Also its adjustment and revision to the curve of Phillips.
Economic Measures of Monetarism
Monetarists rely on the market as a form or mechanism through which resources can be allocated. Along with negative aspects of development controlled. Such as inflation through monetary policies.
- The control of inflation rests with the monetary authorities and it is their task to avoid inflationary processes at all costs.
- The state must reduce the role it has over economic policies. For the monetarists the role of the state in the economy can only cause inefficiency
- Another aspect or measure taken by the monetarists is the commercial opening. In order to promote the exchange of goods and services.
- Its policy of not pursuing a zero unemployment rate is also one of the economic measures proposed by this current thought. So in this way there would be a completely natural employment rate and they anticipate. Actually that, if the state tries to stay below this rate, it would generate inflation.
Within the various economic theories and schools of economics, those that have been most successful. Especially beyond the theoretical approaches have been those capable of providing economic freedom. Hence those theories on which the state focuses as a fundamental piece to control the different phenomena of economics. Actually have proven to be inefficient in practice among those who emphasize Marxist theories.
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