https://t.inks.page/wiki/Monetarism Follow any website on Inks inks.page https://en.wikiquote.org/wiki/Monetarism?t=2026-04-07 In the last decade or two there has grown up in this country, principally under the leadership of Professor Milton Friedman, a school calling itself the Monetarists.  The leaders sometimes sum up their doctrine in the phrase: "Money matters," and even sometimes in the phrase: "Money matters most."

It is with considerable reluctance that I criticize the monetarists, because, though I consider their proposed monetary policy unfeasible, they are after all much more nearly right in their assumptions and prescriptions than the majority of present academic economists.  The simplistic form of the quantity theory of money that they hold is not tenable; but they are overwhelmingly right in insisting on how much "money matters," and they are right in insisting that in most circumstances, and over the long run, it is the quantity of money that is most influential in determining the purchasing power of the monetary unit.  Other things being equal, the more dollars that are issued, the smaller becomes the value of each individual dollar.  So at the moment the monetarists are more effective opponents of further inflation than the great bulk of politicians and even putative economists who still fail to recognize this basic truth.

I do not mean to suggest that all those who call themselves monetarists make this unconscious assumption that an inflation involves this uniform rise of prices.  But we may distinguish two schools of monetarism.  The first would prescribe a monthly or annual increase in the stock of money just sufficient, in their judgment, to keep prices stable.  The second school (which the first might dismiss as mere inflationists) wants a continuous increase in the stock of money sufficient to raise prices steadily by a "small" amount—2 or 3 per cent a year.  These are the advocates of a "creeping" inflation.  …  I made a distinction earlier between the monetarists strictly so called and the "creeping inflationists."  This distinction applies to the intent of their recommended policies rather than to the result.  The intent of the monetarists is not to keep raising the price "level" but simply to keep it from falling, i.e., simply to keep it "stable."  But it is impossible to know in advance precisely what uniform rate of money-supply increase would in fact do this.  The monetarists are right in assuming that in a prospering economy, if the stock of money were not increased, there would probably be a mild long-run tendency for prices to decline.  But they are wrong in assuming that this would necessarily threaten employment or production.  For in a free and flexible economy prices would be falling because productivity was increasing, that is, because costs of production were falling.  There would be no necessary reduction in real profit margins.  The American economy has often been prosperous in the past over periods when prices were declining.  Though money wage-rates may not increase in such periods, their purchasing power does increase.  So there is no need to keep increasing the stock of money to prevent prices from declining.  A fixed arbitrary annual increase in the money stock "to keep prices stable" could easily lead to a "creeping inflation" of prices.

But this brings us to what I consider the fatal flaw in the monetarist prescriptions.  If the leader of the school cannot make up his own mind regarding what the most desirable rate of monetary increase should be, what does he expect to happen when the decision is put in the hands of the politicians?  …  The fatal flaw in the monetarist prescription, in brief, is that it postulates that money should consist of irredeemable paper notes and that the final power of determining how many of these are issued should be placed in the hands of the government—that is, in the hands of the politicians in office.  The assumption that these politicians could be trusted to act responsibly, particularly for any prolonged period, seems incredibly naive.  The real problem today is the opposite of what the monetarists suggest.  It is how to get the arbitrary power over the stock of money out of the hands of the government, out of the hands of the politicians.

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