Milton Friedman and the Rise of Monetarism

Paper Summary:

Monetarism, an economic doctrine that stresses the important role played by money supply in promoting economic stability and growth, was largely developed by Milton Friedman in the mid-twentieth century. This paper shows that, countering Keynesian thought, Friedman postulated that the "quantity theory of money," developed by the economist Simon Newcomb, did, in fact, illuminate most questions on inflation or deflation. The paper shows that Friedman proposed that regulating the supply of money could have a real effect on economic factors such as inflation, deflation, output and employment.

From the Paper:

"However, Friedman did not just resurrect the "quantity theory of money," but used it as a basis to further explore the effect of monetary policy on prices, output and employment. For, as he points out, the "quantity theory of money" is a theory of the demand of money. It is not a theory of output, money income, or of the price level. Any statement of these variables requires combining the quantity theory with some specifications about the conditions of the supply of money and other variables (Friedman (a), p. 52)."

Sample of Sources Used:

• Biz/ed. "Milton Friedman - Theories." Accessed April 26, 2005: http://bized.ac.uk/virtual/economy/library/economists/friedmanth.htm
• Friedman, M. A Program for Monetary Stability. New York: Fordham University Press, 1960.
• Friedman, M. "The Role of Monetary Policy." The Optimum Quantity of Money and Other Essays. University of Chicago: Aldine Publishing Company, 1976.
• Ross, K. "Money, Value, and Monetary History after Friedman." 1998. The Idea Channel. Accessed April 26, 2005: http://www.friesian.com/money.htm#text-10
• Warsh, D. "Milton Friedman's Surprising Secret." The Boston Globe. May 17, 1992. Accessed April 26, 2005: http://www.boston.com/globe/search/stories/nobel/1992/1992n.html

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