What does monetarism mean?
Monetarism is an economic theory holding that changes in the money supply are a major influence on economic activity and prices. Its practitioners generally argue that central banks should control the growth of the money supply and use interest rates and other monetary tools to maintain price stability, particularly by limiting inflationary pressure. The approach became especially influential in the second half of the 20th century, notably through the work of Milton Friedman, and it remains important in discussions of central-bank independence, inflation, and the effects of monetary policy. In public debate, monetarism is often contrasted with policies that place greater emphasis on government spending, taxation, or fiscal stimulus. The word can refer both to the underlying theory and, more loosely, to economic policies based on that theory.
nounMonetarism is the economic theory that changes in the supply of money are a primary cause of changes in aggregate economic activity, particularly inflation. In its policy application, it emphasizes controlling money supply and interest rates as the main instruments of economic management.
- The economic theory that the money supply is a primary determinant of economic conditions, especially inflation.
- The policy approach associated with this theory, emphasizing monetary control and stable or limited money-supply growth.
"The central bank adopted a monetarist approach, reducing the growth of the money supply in response to rising inflation."
"The new government rejected monetarism in favour of fiscal stimulus and targeted public spending."
"Her paper compares monetarist explanations of the recession with those that focus on financial imbalances."
Milton Friedman made monetarism one of the most influential economic ideas of the 20th century, especially influential in debates about inflation and central-bank policy.
Reviewed by Deb Chak, Editor. AI-assisted content curated by RJS Tech Solutions LLP.
Where does monetarism come from?
The word combines the adjective monetary, derived from Latin moneta, meaning “money” or “mint,” with the suffix -ism, which forms a noun denoting a doctrine or practice. The related verbs monetise and monetize also come from the Latin monetary root. The intellectual use of monetarism developed in 20th-century economics, especially in the work of Milton Friedman and other advocates of rules-based monetary policy.
Related word forms
How monetarism is actually used
Monetarism is a technical term used mainly in economics, economic history, and policy discussion. It is often discussed in contrast with approaches that give greater emphasis to fiscal policy, government spending, taxation, or other structural causes of economic change. The term is most closely associated with the work of Milton Friedman and with debates about central-bank independence and controlling inflation.
Easily confused with monetarism
Monetarism is the economic doctrine, whereas a monetarist is an economist or policymaker who supports it.
Monetization means converting assets, activities, or services into money, while monetarism is a theory of managing the economy through monetary policy.