Money does not merely serve to facilitate exchanges or to measure the value of goods and services.
In certain economic approaches, it also constitutes a decisive lever of macroeconomic stability. Inflation, growth, employment, or purchasing power can be influenced by the amount of money in circulation. It is on this fundamental idea that monetarism rests, a school of thought that places monetary policy at the heart of economic balance.
A theory centered on the role of money
Monetarism is an economic school of thought that asserts that variations in the quantity of money in circulation exert a major influence on economic activity and on the general level of prices.
Developed mainly by American economist Milton Friedman, this theory maintains that inflation primarily results from excessive growth of the money supply relative to the production of goods and services.
According to this approach, monetary authorities must strictly control the creation of money in order to preserve price stability and avoid economic imbalances.
Critique of interventionist policies
Monetarism developed notably in opposition to highly interventionist economic policies inspired by Keynesianism. Monetarists consider that excessive government interventions and stimulus policies can provoke inflation and create lasting imbalances.
They generally favor stable and predictable monetary policies, based on a controlled growth of the money supply rather than frequent ad hoc interventions.
This approach strongly influenced several central banks from the 1970s and 1980s, notably in inflation-fighting policies.
Monetarism has contributed to permanently changing the way central banks perceive their role in the economy. By stressing the need to control inflation and preserve monetary stability, this approach has placed the credibility of monetary policies at the center of macroeconomic balances. It thus illustrates the importance given to money in managing growth and the cycles of modern economies.
