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What is a Monetarist?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 14 September 2016
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A monetarist is an individual who holds to the understanding that fluctuations in economic conditions are created as the supply of money within that economy increases or decreases. The general concept of monetarism is often attributed to the work of Milton Friedman, who related the flow of money in an economy to government efforts to control that flow. It is not unusual for a monetarist to also make note of unemployment levels as a factor that impacts the flow of money and thus exerts considerable impact on how a government structures its monetary policy.

In the most simplistic terms, a monetarist usually accepts the theory that the level of social spending has a direct effect on the level of inflation that is experienced within a given economy. This means that in situations where social spending is higher, the potential for inflation to rise is greater. Should social spending be curbed in some manner, this will help to lessen the possibility of inflation taking place, since there is less money being freely distributed through the economy.

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As by products of an increase in inflation, a monetarist will often also state that the logical outcome of this economic condition is that there is less flexibility in the labor market. In other words, people will find it harder to locate and secure jobs that make it possible to earn enough money to maintain their buying power during the inflationary period. At the same time, this period of inflation can undermine productivity, due to increased costs that may lead to companies cutting back on production, and the number of workers needed to maintain that production. With less disposable income to feed the economy, it grows stale and the inflation is likely to continue, unless steps are taken to correct the imbalance.

A monetarist will tend to promote the creation of specific strategies that have the effect of stimulating the money supply within an economy. This in turn has the effect of restoring flexibility to the labor market, making it easier for displaced workers to find jobs that pay equitably and make it possible to enjoy a decent standard of living. At the same time, inflation begins to ebb as productivity rises and competition is restored to the marketplace. While the theory of monetarism may be employed in rather simple and straightforward ways, there are also many adaptations of the basic theory that a monetarist may develop in light of specific conditions that exist within a given economy. Those approaches can further be adapted to fit a localized economy, such as within a state or parish; apply to a national economy; or even be utilized to address issues in the world economy.

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