Handbook on the History of Economic Analysis Volume II

Handbook on the History of Economic Analysis Volume II

Schools of Thought in Economics

Edited by Gilbert Faccarello and Heinz D. Kurz

Volume II contains entries on the major schools of economic thought and analysis. These schools differ with regard to their 'vision' of the working of the economic system, the major forces and interactions that shape its path, and the policy recommendations proposed. At any moment of time, several such schools typically compete with one another, striving for dominance within the economic and political discourse. Each Handbook can be read individually and acts as a self-contained volume in its own right. It can be purchased separately or as part of a three-volume set.

Chapter 26: Monetarism

Arash Molavi Vasséi

Subjects: economics and finance, history of economic thought


The term “monetarism” was coined by Karl Brunner to label a specific set of analytical and empirical propositions brought forward to contest the conventional wisdom of post-World War II macroeconomics (Brunner 1968). The first contributions to what came to be known as monetarism were published during the 1950s. Within the economics profession, it had its heydays in the 1970s due to its ability to predict the US stagflation by means of the expectations-augmented Phillips curve. Monetarist policy views spread quickly and rose to dominance in the 1980s (with the rise of “Ronald Thatcher”, see Laidler 2012: 24, fn 27). Whereas the success of monetarism within the economics profession was largely due to the expectations-augmented Phillips curve, its sway over public opinion was fostered by the monetarist short-run and policy-orientated quantity theory of money. The towering figure of the monetarist school was Milton Friedman, who set the tone in an, at times, heated controversy with the proponents of the neoclassical synthesis. Other prominent members are Karl Brunner, Bennett McCallum, David Laidler, Allan Meltzer, Anna Schwartz, and Carl Warburton (who is the “pioneer monetarist”; see Bordo and Schwartz 1979). It is, however, the work of Friedman that is generally acknowledged to define “monetarist orthodoxy”, that is, the beliefs and methods that characterize the monetarist school. He did no less than to invert the prevailing view of why the Great Depression had happened, and of what had proven to be an effective remedy.

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