Monetarism- 1970s- 2000s


- Is a belief that can be considered as a shift back to classical liberal economics. Monetarism began in the 1970s
Milton Friedman is most associated with Monetarism. (2)
Milton Friedman is most associated with Monetarism. (2)

- Monetarism is an alternative to Keynesian economics which was based on interventionist practices. These interventionist practices were used by countries during and after the Great Depression in the 1930s and World War II
- Monetarism in Canada was promoted by Alberta Premier Ralph Klein, Ontario Premier Mike Harris, and Prime Minister Stephen Harper. All them tried to reverse the interventionist policies of the previous governments
- The theory is that government control of a country’s money supply is the best way to encourage economic growth and limit unemployment and inflation
- The money supply should be controlled by the regulation of interest rates
- Milton Friedman is the economist most associated with monetarism
- A belief is that when money supply increases, so does consumer spending which causes demand to rise thus increasing inflation
- The amount of money being issued by the central bank should be linked to the rate of inflation
- Friedrich Hayek was another influential economist who criticized collective thinking but his ideas weren’t popular because of the popularity of Keynesian economics at the time
- Hayek’s theories became more accepted in the 1960s and 1970s. His theory was that for a collectivist society to work, government would have to have a high level of control. But Hayek believed that excessive government control in economics would lead to excessive government control over social aspects of citizen’s lives which a danger to the freedom of the individual
- Another argument is that it is impossible for the government of a collectivist economy to have enough information to make rational decisions even though they controlled supply
- Friedman and Hayek both believed that a free market was the only way to balance supply and demand in the economy while maintaining individual liberty
- In the 1980s, British Prime Minister Margaret Thatcher and President Ronald Reagan used the theories of monetarism in their government [1]

Significance to Liberal Economics

Since the introduction of Monetarism in the 1970s, economists have been like sharks over how the economy should be regulated. Either by Keynesian theory or by Monetarism. (3)
Since the introduction of Monetarism in the 1970s, economists have been like sharks over how the economy should be regulated. Either by Keynesian theory or by Monetarism. (3)


After economists saw the flaw of Keynesian economics they thought to return back to Liberal economic principles with Monetarism. Governments whose economics systems were based on monetarism tried to get rid of the government intervention policies that existed. By doing so, the governments are returning to a free market like in Liberal economics. Monetarism is a belief that considers the liberty of the individual which is a Classical Liberalism principle. Monetarism is in support of Liberal economics.

References


1.Christison, Fielding, Harding, Meston, Smith, Zook, (2009). Perspectives on Ideology (pp. 217-219)
Canada, Ontario: Oxford University Press.

2. Retrieved from http://appalachianconservative.wordpress.com/tag/milton-friedman/

3. Retrieved from http://www.american.com/archive/2012/march/economics-a-million-mutinies-now-part-two/article_print