What is a 'Monetarist'

A monetarist is an economist who holds the strong belief that the economy's performance is determined almost entirely by changes in the money supply. Monetarists postulate that the economic health of an economy can be best controlled by changes in the monetary supply, or money, by a governing body.

The key driver behind this belief is the impact of inflation on an economy's growth or health and the idea that by controlling the money supply one can control the inflation rate.

BREAKING DOWN 'Monetarist'

At its core, monetarism is an economic formula. It states that money supply multiplied by its velocity (the 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 is up for debate. 

The most well-known monetarist is Milton Friedman, who wrote about his beliefs in the book "A Monetary History of The United States, 1867 - 1960." In the book he, along with Anna Schwartz, argued in favor of monetarism as a combat to the economic impacts of inflation. They argued that a lack of money supply was a cause of the Great Depression. 

Monetarists v Gold Standard

Most monetarists opposed the gold standard in that the limited 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. 

Monetarists view got further credibility when the gold standard collapsed in 1972. As unemployment and inflation soared, Keynesian economics, which was often contrasted to monetarism, was unable to explain the way out of the economic puzzle. On one hand Keynesian economics said high unemployment called for reflation - an increase in the money supply, and on the other hand, rising inflation called for a Keynesian disinflation strategy.

Other monetarists include former Federal Reserve Chairman, Alan Greenspan, and former U.K. Prime Minister, Margaret Thatcher.

RELATED TERMS
  1. Monetarist Theory

    The monetarist theory is a concept which contends that changes ...
  2. Monetarism

    Monetarism is a set of views based on the belief that the total ...
  3. Velocity of Money

    The velocity of money is the rate at which people spend money. ...
  4. Keynesian Economics

    Keynesian Economics is an economic theory of total spending in ...
  5. Money Supply

    The money supply is the entire stock of currency and other liquid ...
  6. New Keynesian Economics

    New Keynesian Economics is a modern twist on the macroeconomic ...
Related Articles
  1. Insights

    Can Keynesian Economics Reduce Boom-Bust Cycles?

    Learn about this famous British economist's proposed solution to a widespread economic problem.
  2. Insights

    Is U.S. Inflation on the Horizon?

    Inflation, or the general price level of all goods and services in an economy, has remained subdued in the years following the Great Recession. Given recent developments, is the U.S. on the verge ...
  3. Insights

    Free Market Maven: Milton Friedman

    As proponent of free market capitalism, this economist changed the way the world's economies operate.
  4. Insights

    Grading Janet Yellen

    Read a review of how Fed chairwoman Janet Yellen performed in her tenure as head of the Federal Reserve, and why it is more complicated than you think.
  5. Investing

    How inflation and unemployment are related

    How can inflation affect unemployment, and vice versa? Here, we examine the relationship between wage inflation, consumer prices, and unemployment.
  6. Investing

    Why Gold Matters: Everything You Need To Know

    Gold is a very useful investment during periods of instability and high inflation. Learn the history of gold, common ways to invest in gold and more.
  7. Investing

    How Much Disaster Can Gold Hedge?

    Gold holds up well in the face of fear, but offers little in times of true collapse.
  8. Insights

    How Does China Manage Its Money Supply?

    Here's how the Central Bank of China manages its currency rates and the money supply.
  9. Trading

    Trading Around Key Options Indicators

    Learn the key economic indicators to help predict market movement.
RELATED FAQS
  1. What is the difference between Keynesian and monetarist economics?

    Discover how the debate in macroeconomics between Keynesian economics and monetarist economics, the control of money vs government ... Read Answer >>
  2. How does money supply affect inflation?

    Learn about two competing economic theories of the role of the money supply and whether money supply causes inflation in ... Read Answer >>
  3. How does monetary policy influence inflation?

    Take a deeper look at how contemporary central banks attempt to target and control the level of inflation through monetary ... Read Answer >>
  4. What is the Keynesian multiplier?

    Introduced by Richard Kahn in the 1930s, the Keynesian multiplier demonstrated that any government spending brings about ... Read Answer >>
Trading Center