A monetarist is an economist who firmly believes that the money supply—comprising physical cash, deposits, and credit—is the main factor influencing demand in an economy. As a result, the economy’s performance—whether it’s growing or shrinking—can be managed by altering the money supply.
The main reason for this belief is how inflation affects the growth or overall health of an economy, along with the notion that by regulating the money supply, one can also manage the inflation rate.
Key People and Concepts in Monetarism
Many monetarists were against the gold standard because they thought the restricted amount of gold would hinder the money supply, potentially causing inflation. Monetarists argue that inflation should be managed through the money supply, which can’t happen with the gold standard unless gold is constantly being mined.
Milton Friedman is the most well-known monetarist. Other notable monetarists are former Federal Reserve Chair Alan Greenspan and former British Prime Minister Margaret Thatcher.
Conclusion
Monetarism’s main idea is that managing the money supply is the key way to control economic demand and inflation. Milton Friedman is probably the most famous person linked to monetarist theory, which became well-known during the financial issues of the 1970s. There have been heated discussions at times between monetarism and Keynesian economics.