Monetarism is the economic school of thought associated with Milton Friedman, which rose to dominance as a counter to Keynesian economics. It posits that inflation is always a monetary phenomenon and that the government’s role should be limited to managing the currency rather than stimulating demand.
Key Mechanisms:
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Inflation Targeting: Using interest rates to keep inflation low, even if high interest rates cause recession or unemployment.
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Fiscal Restraint: Opposing government deficit spending to boost the economy during downturns.
Critical Perspective:
Critics argue that monetarism breaks the post-war social contract. By prioritizing “sound money” and low inflation above all else, monetarist policies often induce deliberately high unemployment to discipline the labor force and suppress wages. It represents a technical solution to political problems, removing economic policy from democratic accountability.
