Schools of Thought in Economics
Edited by Gilbert Faccarello and Heinz D. Kurz
Chapter 26: Monetarism
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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