The monetarism It is a branch of economic thought and studies how money affects the economy. Certainly money is a fundamental piece within the economic structure and is fundamental to carry out commercial exchanges, acquire materials for production and it is even vital to pay wages.
In this article you will find:
History of monetarism
It dates back to the 18th century, when many authors, including Richard Cantillon and David Hume, made explanations of how the increase in the quantity of money could affect the prices.
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Monetarism as we know it today is also a school of economic thought that has developed thanks to John Stuart Mill, who made recognized studies on money, the amount of money in circulation, the speed of circulation and also the general dependence of prices.
What is the monetarist approach?
To begin with, monetarists share the classical and neoclassical view of economics with respect to the economic equilibrium, especially with regard to the rationale for whether the money supply is equal to the demand of liquidity prices will remain stable.
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In their approach they also defend concepts such as free marketHowever, they add that it is the task of governments to maintain economic stability, it is worth noting that the monetarists do not adhere to the idea of other currents of using methodological individualism. His whole focus is on studying and analyzing the demand for money and everything related to the supply. monetary.
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Milton friedman
To fully understand monetarism it is necessary to know the fundamentals of those who had the greatest influence in this current of the thought, such is the case of this Hungarian economist, who completely distrusted the state in economic matters and a faithful believer in the free markets.
He was a great advocate for 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, it is worth noting that he was a great critic of all Marxist doctrine and sought ways to eliminate those barriers that prevented a greater entry of goods and services in some countries.
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The Cambridge group
It refers to a group of economists who belonged to the neoclassical currents of economic thought who, as the name indicates, belonged to the prestigious University of Cambridge.
They and those who were influenced by their theories and thoughts assure that the value of money is beyond their function of allow transactions and trade exchanges, but may also have a role in preserving value between different transactions.
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Irving Fisher and monetarism
He 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 the theories of monetarists the world-famous equation of exchange. Another fact about this great economist is the well-known Fisher effect, which describes the inflation rate that is anticipated on the interest rate.
Knowing some of its most outstanding exponents, we can describe some of the measures that this current of thought presents with respect to economic measures.
Who is the most important author of monetarism?
Monetarism, as we can see, has had great thinkers and outstanding men, but in modern times the Nobel Prize in Economics stands out. in 1976, that he contributed to this current of economic thought with the theory of permanent income and its adjustment and revision to the curve of Phillips.
Economic measures of monetarism
Monetarists trust the market as a way or mechanism through which resources can be allocated and negative aspects for development such as inflation can be controlled through monetary policies.
- The control of inflation falls on the monetary authorities and it is their task to avoid inflationary processes at all costs.
- The state must reduce the role it has on economic policies, for monetarists the role of the state in the economy can only cause inefficiency
- Another aspect or measure that monetarists take is trade openness, in order to promote the exchange of goods and services.
- Its policy of not pursuing a unemployment rate Zero is also one of the economic measures proposed by this current of thought, in this way there would be a rate of completely natural employment and anticipate that, if the state tries to stay below this rate, this would generate inflation.
Within the various economic theories and schools of economics, those that have been most successful beyond the approaches Theorists have been those capable of providing economic freedom, those theories in which the state is centered as a fundamental piece to control the different phenomena of the economy, they have proven to be inefficient in practice, among which the theories stand out. Marxists.
