Preview

Monetarism

Powerful Essays
Open Document
Open Document
2305 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Monetarism
What are they key elements of Monetarism? Why did monetarist ideas become so influential during the 1970s (discuss with particular reference to the UK economy)?

“Inflation is always and everywhere a monetary phenomenon.”[1] Monetarism is an economic movement and school of thought focussing on the supply of and demand for money as the primary means of regulating economic activity. It rose to popularity in the 1970s along with the neo-liberal movement as a whole, when certain Governments adopted monetarism as their economic ideology around which policy was based; namely the United Kingdom under Thatcher and the ‘Reaganomics’ of the United States under president Ronald Reagan. The person who is most associated with this economic perspective is Milton Friedman, one of the most influential economists of the 20th century, who laid down the foundations and did the most influential work for this field of thinking; working closely with conservative governments that adopted his theories in practice through their economic policies. For this reason he is considered by some to be the ‘intellectual henchman of the right.’

With this label in mind, it seems most appropriate to look at Friedman’s work, being the foremost thinker and articulator of Monetarist thought, to gain a better understanding of this standpoint. Before its rise in popularity, Freidman began laying down the foundations for monetarist thought by revising and developing some previous theories, such as that of Keynes, as a means of creating a different way of viewing the macro-economy. His work on the ‘Permanent Income Hypothesis’[2] developed ideas on how people formed expectations of the future. Keynes had already thought and developed ideas on this issue in his ‘consumption function’, trying to understand how much of people’s income is saved and how much is consumed, and the balance between saving and investment. Freidman argued that Keynes had taken for granted that, “the current consumption expenditure,



Bibliography: Modern Macroeconomics: Its Origins, Development and Current State, B. Snowdon and Howard R. Vane, Edward Elgar Publishing Limited, 2005. M. Freidman, A Theory of the Consumption Function, Princeton University Press, 1957 M The General Theory of Employment, Interest, and Money, John M. Keynes, 1936. S. Marglin and J. Schor, The Golden Age of Capitalism: Reinterpreting the Post-war Experience, Oxford University Press, 1990 ----------------------- [1] M. Freidman and A. Schwartz, A Monetary History of the United States, 1867-1960, 1963. [2] M. Freidman, A Theory of the Consumption Function, Princeton University Press, 1957. [3] M. Freidman and A. Schwartz, A Monetary History of the United States, 1867-1960, 1963, pg 676. [4] B. Snowdon and H. Vane, Modern Macroeconomics: Its Origins, Development and Current State, 2005, pg 219. [5] S. Marglin and J. Schor, The Golden Age of Capitalism: Reinterpreting the Post-war Experience, 1990, pg 22.

You May Also Find These Documents Helpful

  • Good Essays

    Egt Task 309.1.2-08, 09

    • 2481 Words
    • 10 Pages

    References: McConnell, C. R., & Brue, S. L., Flynn, S. (2012). Economics (19th edition). New York, NY: McGraw-Hill.…

    • 2481 Words
    • 10 Pages
    Good Essays
  • Good Essays

    Herman E Kroos. Documentary History of Banking and Currency in the United States, v. 1 (NY 1983) p.5…

    • 819 Words
    • 4 Pages
    Good Essays
  • Powerful Essays

    * Mankiw, N. G. (2012). Principles of macroeconomics. (6th ed.). Mason, OH: South-Western Cengage Learning.…

    • 782 Words
    • 4 Pages
    Powerful Essays
  • Powerful Essays

    Friedman, Milton and Anna Jacobson Schwartz. A Monetary History of the United States, 1867–1960, monetarist interpretation…

    • 13975 Words
    • 56 Pages
    Powerful Essays
  • Powerful Essays

    The Federal Reserve System

    • 2808 Words
    • 12 Pages

    Friedman, Milton and Jacobson Schwartz, Anna. A Monetary History of the United States, 1867-1960. Princeton, 1963…

    • 2808 Words
    • 12 Pages
    Powerful Essays
  • Good Essays

    References: Colander, D. C. (2010). Macroeconomics (8th Ed.). Retrieved from The University of Phoenix eBook Collection database…

    • 506 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Milton Friedman

    • 789 Words
    • 4 Pages

    Friedman is strictly a monetarist. This means that he believed that inflation was a direct result of growth in the supply of money into an economy. His views differed however, with those of his contemporaries, in the major point that he believed that economic stability could only be reached through non-intervention on behalf of the government. This policy is often known as laissez-faire (French for 'let things be') economics. The policy at the time was for the government to sharply increase or decrease money supply, to counteract inflation, in an attempt to attain a stable economy. Friedman argued however, that this intervention was destabilising, and that what was needed was a steady money flow to create a basic framework for the economy; the rest should be left up to individual competition. This school of thought goes along the lines of 'It is in the best interest of the producer to satisfy the consumers' wishes. By…

    • 789 Words
    • 4 Pages
    Good Essays
  • Satisfactory Essays

    During the 20th century, Milton Friedman, an American economist, opposed the British economist, John Maynard Keynes, in hope of changing the way humanity perceives economics, free markets, and government financial concerns. Milton Friedman challenged Keynesian economics by proposing the Theory of the Consumption Function, which combined individual expenditures and consumption. Friedman had many ideologies that altered the world of economics compared to the financial expert, John Maynard Keynes, with their outlooks on the monetary policy and the Federal Reserve. Although Keynes opinions changed individual's perception on the primary view of economics, Friedman became the man with more respect to his name and even more credible advocate for…

    • 172 Words
    • 1 Page
    Satisfactory Essays
  • Good Essays

    John Keynes and Milton Friedman were the most influential economists of the 20th century. Friedman spent much of his intellectual energy attacking the legacy of Keynes, it is natural to consider them opposites. Their differences were, indeed, profound and so was what they shared. Believe it or not, neither won or lost: today's policy orthodoxies are a synthesis of their two approaches.( http://gecon.blogspot.com July 19, 2009)…

    • 695 Words
    • 3 Pages
    Good Essays
  • Better Essays

    The monetarist analysis of the economy places a great deal of stress on the velocity of money, which is defined as the number of times a dollar bill change hands, on average, during the course of a year. The velocity of money is the rates of nominal GDP to the stock of money, or V=GDP/M= (P x Y) (M. Alternately, M x V=P x Y). The New Classical model, firms are assumed to be perfectly aggressive “price takers”, with no control over the price. For instance, manufacturing firms, airlines, and many other firms can choose exactly what price to set, but they have no control over the amount sold (Gordon, 2009). New Classical approach originated by Milton Friedman, then at the University of Chicago, and Edmund S. Phelps of Colombia University. It was later more fully developed by Robert E. Lucus Jr, of the University of Chicago. Based on the idea that households and firms lack the full set of information needed, to make their economics decisions. Based not on imperfect information, but on shocks to technology and supply conditions (Case, p. 553). The New Classical macroeconomic has industrial from two different but related sources: the theoretical and the practical critiques of traditional macroeconomics. On the theoretical level; there has been growing dissatisfaction with the way traditional models treat expectations. Prices and wages do no change fast enough for classical self correction to occur (Case, p.568).…

    • 1464 Words
    • 6 Pages
    Better Essays
  • Powerful Essays

    Theories of Buyer Behaviour

    • 5973 Words
    • 24 Pages

    Kazkommertsbank is one of the largest private banks in CIS and the market leader by total assets in Kazakhstan. The Bank provides a wide range of banking and other financial services to corporate and retail clients across the region.…

    • 5973 Words
    • 24 Pages
    Powerful Essays
  • Powerful Essays

    Milton Friedman

    • 3278 Words
    • 14 Pages

    While working under President Regan, Friedman decorated the virtues of the free market system, and pushed for less government intervention. It was in the 1980’s that that his views on monetary policy, taxation, and deregulation most influenced the American government, and has continued to be used right up to the 2007-present global financial crisis. Most recognized for his ‘poster boy republican’ economical views and ideology, Friedman received the Nobel Memorial Prize in Economics for his research in consumption and the stabilization policy in 1976.…

    • 3278 Words
    • 14 Pages
    Powerful Essays
  • Better Essays

    Phillips`S Curves

    • 1036 Words
    • 5 Pages

    Milton Friedman (1968). The Role of Monetary Policy. The American Economic Review, Vol. 58, No. 1 (Mar., 1968), pp. 1-17…

    • 1036 Words
    • 5 Pages
    Better Essays
  • Good Essays

    Song Lyrics

    • 546 Words
    • 3 Pages

    Keynesian economics is based on the flawed theories of John Maynard Keynes. He was a 20th century British economist whose theories were documented in “The General Theory of Employment, Interest and Money,” published in 1935. His ideas called for a mixed economy where both public and private sectors are involved, and was a proponent of at least some level of centrally planned inflation.…

    • 546 Words
    • 3 Pages
    Good Essays
  • Good Essays

    What are the characteristics of monetarism, and how did it come to dominate economic policy?…

    • 869 Words
    • 4 Pages
    Good Essays