Saint Petersburg State University

Faculty of Economics

Department of Finance and Credit

Coursework on the topic:

Monetarism

Completed:

2nd year student

Departments of Accounting,

analysis and audit

Chizhov A. O.

Scientific adviser:

Kanaev A.V.

Saint Petersburg 2001
Table of contents

Introduction

Search for new approaches __________________________________________________ 6

Initial postulates ________________________________________________________ 7

Equation of exchange by I. Fischer____________________________________________ 9

Cambridge Formula _________________________________________________ 11

Demand for money _____________________________________________________________ 12

Money supply __________________________________________________________ 14

How to achieve balance? ______________________________________________ 16

Money and prices _____________________________________________________________ 18

Expectations and inflation __________________________________________________ 20

Friedman's Money Rule____________________________________________ 21

Monetarism and Keynesianism ___________________________________________ 24

Monetarist recipes and the Russian economy __________________________ 25

Brief conclusions _________________________________________________

Introduction

Monetarism - school economic thought, giving money a decisive role in the oscillatory movement of the economy. Monetary - means monetary (money - money, monetary - monetary). Representatives of this school see the main reason for the instability of the economy in the instability of monetary parameters.

The focus of monetarists is on monetary categories, monetary instruments, banking system, money-credit policy. They look at these processes and categories to identify the relationship between volume money supply and the level of total income. In their opinion, banks are the leading instrument of regulation, with the direct participation of which changes in money market are transformed into changes in the market of goods and services.

We can say that monetarism is the science of money and its role in the process of reproduction. This is a theory that justifies the specific methods of regulating the economy with the help of monetary instruments.

Monetarism is one of the most influential currents in modern economics belonging to the neoclassical direction. He considers the phenomena economic life mainly from the point of view of the processes taking place in the sphere monetary circulation.

The term "monetarism" was introduced into modern literature by Karl Brunner in 1968. It is usually used to characterize the school of economics (mainly the Chicago one), which claims that total money income has a primary influence on the change in the money supply.

Initially, monetarism was identified with anti-Keynesianism, which is confirmed by the title of some works of prominent representatives of the monetarist theory (G. Jonsan's book "The Keynesian Revolution and the Monetarist Counter-Revolution").

Simultaneously with the criticism of Keynesian macroeconomic theory and economic policy, the monetary theory of determining the level national income and the theory of the cycle, with his supporters developed the leader of the monetarists Milton Friedman(born 1912) - American economist, laureate Nobel Prize in economics in 1976, awarded "for research in the field of consumption, history and theory of money." A native of New York, he graduated from Rutgers (1932) and Chicago (1934) universities. Until 1935, he was a research assistant at the University of Chicago, then became an employee of the National Resource Committee, and since 1937, an employee of the National Bureau economic research. In 1940 he taught at the University of Wisconsin, in 1941-1943. - an employee of the Ministry of Finance as part of a group of researchers in the field of taxes. From 1943 to 1946, he served as Deputy Director of the Military Statistical Research Group at Columbia University, where he received (1946) a doctorate.

In 1946 he returned to the University of Chicago as a professor of economics, remaining in this position to this day. And world fame was brought to him, first of all, by works on monetarist topics. Among them, a collection of articles published under his editorship "Studies in the field of the quantity theory of money" (1956) and a book published in collaboration with Anna Schwartz "History monetary system USA, 1867-1960" (1963). Friedman's monetary concept, in the words of the American economist G. Ellis, led to the "rediscovery of money" due to almost everywhere growing, especially in the recent period, inflation.

The subsequent growth in the influence and popularity of monetarism, especially in the United States and Great Britain, where it was accepted as the main theory in the development of economic policy, is associated with the aggravation of inflationary processes and their impact on the state of the economy.

For more than three decades of existence, monetarism has expanded its influence, has undergone certain changes. He began to claim the role of a universal general economic doctrine capable of solving such problems. economic problems like efficiency economic regulation, the role of the state in economic life, etc. Monetarism is widely promoted by its representatives as a monetary policy specifically aimed at controlling the growth of the money supply.

Significant influence on the formation monetarist theory rendered by American economists of the 20-40s G. Simons, I. Fisher, F. Knight and others. They attached great importance to the sphere of monetary circulation, which was subsequently underestimated by the Keynesians. That is why a number of Western researchers consider one of the merits of the monetarists to be the "rehabilitation" of money in the system economic categories. A certain respectability to monetarism is given by references to A. Smith and the founders of the quantitative theory of money D. Ricardo, D. Hume, R. Cantilon, G. Torton.

Search for new approaches

Attention to monetarist theory has increased since the second half of the 70s - early 80s. During this period, Keynesian methods were found to be failing. A search began for new approaches to restoring the economic balance. For Keynes, the most acute problem at the center of his analysis was unemployment, employment and economic growth. Now the task of regulating inflation has come to the fore.

The growth of consumer prices in Western countries has crossed the ten percent mark, amounting to in 1974-1975. in the UK 16-24%, in the US 9-11%. Inflationary processes in the USA - economic and financial center capitalist world - initiated price spikes in other countries.

Unemployment of many millions, along with rising inflation and falling or stagnant production, meant the emergence of a new, previously unknown phenomenon, called

"stagflation" (stagnation plus inflation). A kind of vicious circle has been created. Governmental support unprofitable enterprises did not contribute to the exit from the crisis. The investment funds that new productions needed were wasted.

In the disputes and discussions of economists, a variety of interpretations of the causes of inflation and stagflation arose. Many still believed that it was necessary to regulate demand, but disagreed on how to do it. Measures aimed at Maintenance economic mechanism ignored the objectives of long-term policy.

Among economists, the slogan "Back to Smith" became popular, which meant the rejection of methods of active government intervention and regulation, the hasty development of a new doctrine.

The greatest attention was attracted by the views and proposals of the theorists of the monetarist school and supporters of the theory of "supply-side economics". They had a noticeable influence on the formation of official doctrines and the economic policy of the Western powers.

Initial postulates

It should be noted that the supporters of this trend and their recognized head Milton Friedman spoke with monetarist concepts back in the 50s, but then their proposals and conclusions were not particularly popular. They were in demand later, when new problems were put on the agenda.

In order to present Friedman's concept, let's single out the initial positions, to some extent shared by his supporters.

1.Recognition of the stability of the monetary economy. The market economy, according to monetarists, itself, due to internal trends and conditions, strives for stability, for self-regulation. System market competition provides high stability. Prices act as the main tool for correcting in case of an imbalance.

The postulate of the stability of a private, market economy is directed against Keynes's assertion that state intervention is necessary, which, they say, violates the natural process.

2.Priority of monetary factors. Among the various instruments inactive on the economy, it is proposed to give preference to monetary instruments. It is they (and not administrative, not price instruments, not tax system) are best able to ensure economic stability as the main goal of regulation.

Keynes appreciated budget policy as a tool, accurate enough, fast and predictable in results. In contrast, Friedman characterizes monetary policy in a similar way.

He proceeds from the fact that between the movement of money (the growth rate of the money supply) and the dynamics of the gross national product there is a fairly strong correlation. An acceleration or deceleration in the growth rate of the money supply affects the aggregate money income, which means that the development business activity, cyclical fluctuations in production.

3.Regulation should focus not on current, but on long-term tasks. The consequences of fluctuations in the money supply affect the main economic parameters not immediately, but with some gap in time. The time lag (gap) is usually several months. It varies from country to country and depends on the state of the market and other factors.

Current adjustments to influence the market are usually late. Economic conditions are changing rapidly. Monetary policy is designed to focus not on current effects and short-term changes, but to be of a long-term nature.

I. Fisher's equation of exchange

The monetarist concept is based on the quantity theory of money, although its interpretation is somewhat different from the traditional one.

Quantity theory says that there is a direct relationship between the amount of money and the price level, that prices are determined by the amount of money in circulation, and purchasing power money is determined by the price level. As the money supply increases, prices rise. Conversely, if the money supply shrinks, prices fall. Other things being equal, commodity prices change in proportion to the quantity of money.

Let's say that cash flow, providing a turnover, is 1/10 of annual income. In other words, money makes about ten revolutions a year. To ensure the realization of an annual income (product), for example, of $10,000, you need to have $1,000 in circulation. twice.

One of the developers of the quantity theory, the American economist Irving Fisher (1867-1947) wrote: “Adding together all the individual equations of purchase and sale, we obtain the equation of exchange for a certain period in a given society ... The equation of exchange applies to all purchases made with money ..."

This equation contains two indicators on the left side: the amount of money M and their speed v. The right side of the equation includes two groups of quantities: the amount of goods exchanged, or the real volume of production Y and price level R. The equation can be represented as

M*V=P*Y.

It is called the equation of exchange by I. Fisher, who refined the formula of the classics. Fisher expanded his understanding of the means of circulation by including M non-cash money, supplemented the formula with an indicator V, reflecting the velocity of money circulation.

Fisher's equation is an identity. It reflects the fact that in practice the correspondence of means of payment and commodity-money transactions is usually established. The flow of goods moves towards the flow of money. When one component changes, others change as well. If the money supply grows, then with the stability of V, either prices P or the volume of production in value terms change R* Y.

Representatives classical school considered that V and Y do not depend on fluctuations M(money supply). They believed that the velocity of money circulation and the real volume of production (output) change insignificantly and can be considered as relatively constant parameters.

Cambridge formula

It was believed that the market economy seeks to equalize to natural level the main parameters are production volumes, the velocity of money circulation. Interest rates (price of money) are also equalized. According to the Fisher effect, when the money supply increases, the demand for money falls and the rate of interest decreases. But as prices rise, the demand for money rises again and the rate of interest rises. Such fluctuations eventually lead to the establishment of a natural rate of interest.

Fisher considered the most important effect of changes on the left side of the equation (M v) on the right side - prices (P) and the price expression of "trade turnover" (R* F).

This was probably due to his assessment of the consequences of the influx of gold from America, which caused a "price revolution".

The real connections between the constituent elements of the equation of exchange are more complex and multifaceted. Fisher's formula somewhat simplifies the picture. It does not take into account that prices are also affected by other variables - income levels, expectations, changes in employment, technological shifts.

Representatives of the neoclassical school (Cambridge approach) modified the Fisher equation. In their interpretation, it took the following form:

M=k*P*Y,

where M - amount of money, Y- real income k- coefficient showing what part of the nominal income members of the society prefer to keep in monetary form.

If individuals prefer to keep a tenth of their annual income in cash, then k= 0.1. Then, in order to ensure the realization of the national income, the money must turn around ten times during the year. (V= 10) .

Thus, the coefficient k- reciprocal v. The velocity of money circulation depends on how much money is stored in the form of cash balances- cash reserve intended for transactions. If the money supply decreases, then the velocity of circulation of money invariably increases.

Demand for money

Possessing wealth, a person in a market economy can store it in various forms - in the form of money, valuable papers, land plots, real estate, consumer durables. The value of some types of wealth increases, others - falls. Everyone strives to increase income (profit) from the wealth at his disposal and decides in what form it is more expedient to store it.

According to Friedman, the demand for money depends not only on the return on financial assets, but also on other forms of wealth that can generate income. "The primary owners of wealth can own it in a variety of forms, and each chooses the way of dividing wealth into types of ownership, which allows you to get the maximum "utility"".

Friedman identifies five main forms of wealth: money, bonds, stocks, physical goods, human capital. Wealth forms are replaceable, they can be bought and sold. If one form of wealth brings not enough high income, its owner exchanges it for another, more profitable form.

The desire to have part of the assets in cash is understandable: money is easily liquid, realizable. Having a cash reserve, you can easily purchase any goods and services.

The possession of cash as such does not bring income and may even be associated with additional costs (expenses for storage). A cash reserve is needed for daily expenses, and keeping the rest of the assets in the form of money is associated with a loss alternative income. Money lying in a safe, wallet or money-box deprives their owner of the income that can be received in the event of the purchase of bonds, investments in entrepreneurial activity, in investment goods.

In contrast to the Keynesian interpretation, monetarists (based on the Cambridge formula) argue that money demand is determined solely by the needs of exchange, in other words, by the transactional motive. According to Friedman, "the main reason is, of course, that they serve as a medium of exchange of goods or a temporary reservoir of purchasing power", which avoids the difficulties of exchange, especially arising from barter.

How much money do people want to have? The question can be formulated differently: how much of their assets do people want to have in liquid form, and not in other types of assets? According to Friedman, that part or the level that is necessary for the proper provision of purchases, payment for goods. It is impossible to do without cash reserves, but it is advisable to have a minimum of money in the cash register.

The need for money is the demand for money. Unlike Keynes, Friedman believed that money demand is relatively stable. People tend not to accumulate excess cash in cash desks and wallets in order to receive maximum benefits. In the case of an excess of money on hand, they seek to transform it into other assets that bring interest or profit.

If prices are expected to rise (inflation), the purchasing power of money will fall, and people will try to get rid of "hot" money. If prices are expected to fall, then, on the contrary, the demand for money will increase.

The demand for money decreases as the interest rate rises. It is a kind of regulator, with the help of which the optimal proportion is achieved between money as a store of value and securities that generate income in the form of interest.

But the demand for money depends on more than just the interest rate. According to Friedman's theory, the demand for money is determined by its marginal return compared to the return on all other types of assets (forms of wealth).

money offer

Supply is the amount of money in circulation. It is quite variable, set from outside, not determined economic factors although these factors influence the decisions made. The money supply is regulated by the central bank, the amount of loans provided commercial banks buying and selling of securities.

The demand for money and their supply are the initial parameters, under the influence of which the monetary equilibrium is formed. This balance is not formed in isolation. Equilibrium in the monetary sector is organically linked to the processes taking place in the commodity sector.

As already noted, the relationship between these two sectors is considered by monetarists and Keynesians ambiguously. Keynes attached significant importance to interest as a factor inactive on the dynamics of investment, on aggregate demand. However, he noted that the role of the interest rate should not be exaggerated. It must be taken into account that investment demand does not always and not too “cheerfully” react to a decrease in interest (“investment trap”), and an increase in the money supply does not necessarily lead to a decrease in the level of interest (“liquidity trap”).

Monetarists assess the role of the monetary factor and interest somewhat differently. Demand for goods and investment they associate with cash flow(volume of money supply). They interpret the scope of goods that are opposed to money more broadly. it financial assets, physical property, newly produced goods, investments in human capital. The adaptation of the economy to changes in the monetary sector presents a very complex and contradictory picture.

Undoubtedly, changes in the quantity of money and the velocity of their circulation affect aggregate demand. Some increase in the money supply will increase the demand for goods and services. But one should not push money demand, because this is fraught with uncontrollable growth.

prices. It is important not to interfere with the price mechanism to act in the direction of the sustainable development of the economic process.

How to achieve balance?

M. Friedman together with A. Schwartz came to the conclusion that the growth rate of the money supply follows a cyclic pattern. In The Monetary History of the United States. 1867-1960, they tracked how the growth rate of the money supply accelerated or slowed down, and came to the conclusion that for almost a hundred years the economic dynamics of the United States was determined by the movement of the money supply.

First, it was noted that the change in the growth rate of the money supply preceded the change in the growth rate of the social product. The peak of the growth of the money supply preceded the rise in production, the lowest point of the money supply - its decline. Thus, according to Friedman and Schwartz, the money supply (the amount of money in circulation) has a direct impact on economic life through its influence on the amount of spending by consumers and firms.

An increase in the money supply leads to a reduction in their price (the interest rate decreases). It becomes profitable to take a loan, the demand for investment goods is expanding. With the growth of capital investments, the gross social product increases and the level of employment rises.

Changes associated with an increase in the money supply are not only quantitative. Prices on different kinds production is rising, but unevenly. Price ratios between different groups of goods change. Often, demand switches first to cheap goods, then to new goods, then to services. Price shifts, changes in relative prices contribute to structural shifts, and as a result, prerequisites are created for sustainable development in the long term.

As a result of the self-regulating "work" of prices and the equalization of the purchasing power of money, the necessary connection is established between the monetary and commodity sectors.

Money -- stability factor

Monetarists assume that main function money - serve financial basis and the most important stimulant economic development. The regulation of the money supply through the system of banks affects the distribution of resources between industries, promotes technical progress, and maintains economic activity.

Cash should be used with care. If there is a relatively small increase in the amount of money in circulation and, accordingly, an increase in prices, consistent with the rate of economic growth, then the necessary prerequisites are created for an equilibrium between the monetary and commodity sectors. If prices rise rapidly, uncontrolled inflation unfolds. The purchasing power of money decreases. The need for them is growing, because the volume of trade (in nominal terms) is increasing. a lack of Money can lead to a crisis of payments and settlements.

As mentioned above, the demand for money is formed on the basis of a comparison of alternative benefits. In connection with the expected inflation, everyone is trying to get rid of the "hot" money. They are transformed into other types of assets, for example, into securities, real estate, and not into production, because the risk investment investments is growing.

The starting points of the monetarist theory - stability market mechanism, its ability to self-regulate; this refers to the presence in society of certain conditions. Wealth structure optimization assumes that the middle class has the basic forms of wealth and can choose what is more useful for maximizing income. Prerequisites are needed for the free investment of resources and the movement of assets; the aggregate demand for money should stabilize.

Money and prices

According to the ideas of monetarists, inflation is a purely monetary phenomenon. In Friedman's words, "the central act is that inflation is always and everywhere a monetary phenomenon." The cause of inflation is an excess of money supply, "a lot of money - few goods." Changes in the demand for money usually arise as a reaction to ongoing processes, to the market situation, and changes in economic policy.

Monetarists distinguish between two types of inflation: expected (normal) and unforeseen (does not correspond to the forecasts and ideas of the participants in the economic process). With the expected inflation, prerequisites are created for achieving equilibrium in the markets for goods and services: the rate of price growth corresponds to the expectations and calculations of people. The state in one form or another informs about the expected increase in prices, say, by 3% per year, and producers, sellers, buyers adapt to this.

Another thing is if the inflation rate goes beyond the expected. The sharp rise in prices is accompanied by various violations, deviations from the usual rhythm of economic activity.

Commodity prices, according to Friedman, are like a thermometer in that the latter registers heat but does not create it. But such an analogy is misleading. “A broken thermometer has no effect on the phenomenon it measures; it simply increases our ignorance... Prices are not only a measuring tool, they also play a vital role. important role in the economic process itself.

In this case, perhaps, the analogy with a steam boiler driving a blower is more appropriate. “By controlling the temperature in one room by turning off the radiator in it, you simply increase the temperature in other rooms. By turning off all radiators, you will increase the pressure in the boiler and increase the risk of its explosion. By turning individual radiators off or on, you find a way to control the temperature in different rooms.”

Using the analogy of a steam boiler, Friedman seeks to reinforce his negative attitude towards price regulation, to curbing prices. He argues that price controls and salary unable to eliminate inflation.

Expectations and inflation

Unexpected inflation leads to an increase in unemployment. If in the short run there is an inverse relationship between inflation and unemployment, then in the long run this relationship disappears. In the long run, there is no alternative between inflation and unemployment. The constantly renewed policy of monetary stimulation of aggregate demand does not generate stable, but ever-increasing inflation; the average annual price growth is no longer 3%, but 6%, then 10%, etc. As prices rise, so does the number of unemployed.

Hence the conclusion is drawn: it is necessary to block the channels that generate unforeseen inflation. The inflation control program is aimed at ensuring low growth rates of the money supply.

We need to eliminate the deficit state budget(“budget deficits often serve as a source of monetary expansion”, “deficits are a source of inflation”, if “they are financed by

money issue). Union pressure must be limited; cut down government spending, including funds allocated to maintain full time(“A policy of full employment can become a source of inflation if it gives rise to an excessive issue of money”).

Optimal price growth should be stable for a long time, this is intended to contribute to the monetary policy of the state. Between the rate of growth of the money supply and the growth of prices there is no exact, rigidly defined relationship. In the initial period of inflation, the money supply in circulation grows faster than prices.

The rise in prices is seen during this period" life cycle» inflation as a temporary, random phenomenon. Then the situation changes: "As the purchasing power of money decreases, it becomes an expensive way to store assets." "Excess" money is sought to be freed. "Therefore, at this stage, prices rise faster than the amount of money, and sometimes much faster."

As for cost-push inflation, according to Friedman, it doesn't deserve to be special attention: "the theory of cost-push inflation is of very limited use." At the same time, reference is made to the fact that the true sources of monetary expansion were very different at different times and in different areas. To slow down cost inflation, monetarists put forward two recipes: maintaining competition and using a floating exchange rate.

Friedman's money rule

As noted above, monetary policy should be aimed at achieving a match between the demand for money and their supply. The growth of the money supply (the percentage of money growth) should be such that price stability is ensured. Friedman proceeds from the fact that to maneuver with various indicators raising money is very difficult.

Central bank forecasts are often wrong. It is difficult, if not impossible, to find out exactly what factors influence economic development. Decisions are usually made late.

“If we look at the financial area, in most cases the wrong decision is likely to be made, since the decision makers consider only a limited

area and do not take into account the totality of the consequences of the entire policy as a whole," Friedman wrote. In his opinion, the central bank should abandon the opportunistic policy of short-term regulation and move on to a policy of long-term impact on the economy, a gradual increase in the money supply.

Money supply does not affect real, but nominal GNP. Monetary factors "work" on price and value indicators. Therefore, under the influence of the quantitative growth of money, there is an increase in prices, and not an increase in the real volume of the social product. This circumstance should be taken into account when developing practical recommendations.

When choosing the rate of growth of money, Friedman proposes to introduce a rule of "mechanical" growth in the money supply, which would reflect two factors: the level of expected inflation and the rate of growth of the social product.

Friedman believes that the average annual growth rate of the money supply should be set at 4-5%. At the same time, it proceeds from a 3% growth real GNP(for the United States of America) and a slight decrease in the velocity of money.

This 4-5% increase in money should go continuously - month after month, week after week. “How exactly the concept of money will be established and what exactly the rate of growth will be set is of far less importance than the fact that this concept is firmly defined and that the rates are clearly indicated.”

In practice monetary regulation usually set not a firm standard (according to monetary rule), but a kind of fork around which the money supply (inflow of money) should fluctuate, or a “target”, i.e. ceiling level that must not be exceeded.

For example, in the United States, the Fed's Board of Governors set growth targets in 1967 M\ at a rate of 3-5% per year. In England in 1976-1977. limit for MOH was set at 9-13%, but it was exceeded and reached 15-18% per year.

Monetarist recipes for regulating the economy also include other activities: the sale and purchase of securities (policy open market), system required reserves, change in the discount rate, etc.

since the economy inevitably adapts to any systemic influences, a policy that no one expects and cannot adapt to it in advance turns out to be effective in principle.

Monetarism and Keynesianism

As already noted, monetarist concept and monetarist recipes differ from Keynesian ones, and sometimes even contradict them. However, it would be wrong to draw a sharp line between these two approaches to the problem of economic regulation. Both theories are constructed in relation to the conditions, first of all, of a market economy. To a certain extent, they complement each other, making up the theory of determining the total income. Keynes substantiates the quantitative dependence of income on expenses, Friedman - the dependence of income on money. At the same time, there are considerable differences between the approaches of Keynes and Friedman. In the most general, schematized form, they are presented in Table. 21.1.

Table 21.1.0 the main postulates of the concepts of the monetarist and Keynesian schools

It should be borne in mind that Friedman's concept is not only a theory of the monetary regime and monetary policy for a stable economy with a low inflation rate. In fact, it also contains another part (or section), which includes a system of measures for the economy transition period. To solve the tasks of a transitional nature, other effects, incentives and measures are envisaged, other

monetary regime. It provides for the rejection of the regulatory role of the state and its participation in the creation of money. A system of measures is proposed for the transition to free prices. Emphasis is placed on privatization and the full expansion of the private sector.

Monetarist recipes and the Russian economy

Fascination with monetarist recipes without regard real conditions and the peculiarities of Russia led to very disappointing results. The costs and losses of "shock therapy" are immeasurably high, and the prospects for overcoming the crisis are problematic. Tight monetary policy, aimed at overcoming inflation and stabilizing the economy, did not bring the desired results. Why is it impossible to rely recklessly on monetarist methods? 1. The theoretical construction and recipes of monetarists (one-factor model) assume the existence of ideal conditions for perfect competition. Similar prerequisites in Russian economy no. The position of monopolists is strong here, price proportions are distorted. There is no appropriate infrastructure, financial stabilization has not been achieved. For several years, there was an uncontrollable decline in production, and investments were reduced.

At the heart of Russian inflation lies not one purely monetarist reason, but a complex of complex and contradictory factors. This is not just demand-pull inflation, but also cost-push inflation, structural inflation, expectation inflation, imported inflation.

To overcome multifactorial, specific inflation, simple schematic recipes are not suitable. It is impossible to move to the market through market self-regulation, the market itself will not be formed. The former disproportions are preserved and intensified. The costs are high, the system of market incentives has not developed and does not work.

2. Long-term tight monetary policy creates a shortage of funds. restrictive policy Central Bank RF inevitably leads to the creation and use of alternative monetary surrogates (barter, bills, etc.) in the peripheral sectors of the economy. In the conditions of a "non-monetary" economy, the application of monetarist recipes leads not to stabilization, but to the deepening of crisis processes.

3. The policy of monetarism, which rejects in principle state regulation (except monetary), contradicts the conditions and requirements of the transitional economy.

Severe restrictions on income and credit undercut demand and limit production. Monetarist methods are not compatible with supply-side approaches. The reduction in the money supply leads to non-payments, containment and reduction of output, and increased inflation.

It becomes more and more obvious the need to reorient the reform towards a socially oriented market, to use Keynesian methods of regulation.

A socially oriented market is the subordination of production to the needs of the consumer, the redistribution of part of the income in the interests of social stability and ensuring the mass demand of the middle strata, priority economic efficiency over other needs.

Inflation management - modern look

It is quite obvious that the methods of fighting inflation, the methods of stabilizing money circulation and finances depend on the nature, type of inflation, the characteristics of its impact on the economy, and the reasons that underlie it. When developing economic policy, they usually do not strictly adhere to any one recipes or schemes. Western supporters of the stabilization policy see the main problem in slowing down inflation without causing a sharp increase in unemployment.

Many economists are guided by an assessment of the current situation, taking into account the relationships expressed using the Phillips curve. Its meaning is that high inflation occurs when unemployment is low, and low inflation occurs when unemployment is high.

Keynes believed that the stimulation of aggregate demand should not significantly affect the rise in prices. As long as there is untapped capacity and a free labor force, an expansion in demand will lead to an increase in the production and supply of goods, and not to an increase in prices. In the formula M *V= R * T with increasing M(demand) will increase T(trade); V- a constant value, and R(price level) will remain unchanged.

Only after the factors of production have been fully employed will the further growth of production run into certain obstacles, and then the increase M(demand) is transformed into growth R(price level) with relatively stable T(trade).

Unlike Keynes, Friedman proceeds from the existence of a direct relationship between the demand for money and their quantity in circulation. If the demand for money exceeds the money supply, this will cause a desire to get rid of excess money, spur demand and push inflationary price increases. Friedman relies on the same money circulation formula, but interprets it differently. As noted above, he interprets inflation as a purely monetary phenomenon. To slow it down, it is necessary to contain the money supply (the growth of the money supply).

According to the monetarist approach, the main means of curbing inflation is to reduce the amount of money in circulation. Monetary recipe: control over money circulation, although this will be accompanied by a reduction in production.

Currently, the search for the most effective tools used to combat inflation continues. Individual approaches are being clarified, corrected, recipes are being detailed. There comes an understanding of the insufficiency of isolated and schematic recipes, the impossibility of "pacifying" inflation only with the help of monetary and financial policy.

The set of measures put forward and carried out in practice provides for the need to combine measures to stimulate demand with measures to enhance supply. To this end, the following are proposed: tax cuts, reduction in social spending, income regulation (restraint in the growth rate wages), the introduction of benefits for investors, the creation of conditions for the retraining of the workforce and other measures. Financial stabilization should be combined with measures to stabilize and stimulate production.

Brief conclusions

Monetarism gained popularity in the 70s, when Keynesian methods of ensuring high employment and overcoming inflation became untenable. The monetarist theory sees the cause of economic instability in the violations of the functioning of the monetary sector, in the excessive growth of the money supply.

The provisions and conclusions of the monetarist school are based on the quantitative theory of money, the recognition of the ability of a market economy to self-regulate. The exclusive role of money is emphasized - a special commodity that allows maximizing income from other types of assets.

M. Friedman and his followers proceed from the fact that between the growth of the money supply and the dynamics of national income there is

close correlation. It manifests itself most prominently within long term. Within one business cycle, changes in the growth rates of the money supply and nominal income occur with a time gap of several months. The presence of time lags indicates the inefficiency of short-term methods of regulation.

Unlike Keynesian views, monetarist theory proceeds from the recognition of a stable demand for money, which is the main condition for the stability of effective demand and market system generally. Preference is given to monetary policy. The recipe of the monetarists is that the money supply must constantly grow at a constant rate corresponding to the growth rate of production (Friedman's monetary rule).

As Russian practice has shown, the thoughtless use of monetarist recipes is not capable of solving the problems of the transition period. The theory of monetarists should not be regarded as universal. The recommendations of the monetarists should be used taking into account the real

conditions, combined with other economic policies.

References

Bartnev S.A. History of economic doctrines.-M.: Lawyer, 2001.-456 p.

Howard K., Eriashvili N.D., Nikitin A.M. Economic theory: Textbook for universities.-M.: UNITI-DANA, 2000.-398 p.

· Dolan E.J., Colin D. Campbell, Rosemary J. Campbell Money, banking and monetary policy

Course of Economics: Textbook./Edited by B.A.Raizberg.-M.:INFRA-M,2001.-716 p.

· Friedman M. If money spoke. M.: Delo, 1998.

Initially, the basis of monetarism is money theory. Representatives of this theory believe that the supply of money is autonomous, and the rash actions of the state to sell bonds and additional issue cause economic imbalance.

If we state the theory of monetarism briefly, we can single out the following theses:

• the role of the state is limited to control over the circulation of money;
• the market economy is regulated independently;
• the amount of money in circulation affects the amount of consumer spending, rising prices and inflation;
• inflationary processes must be suppressed;
• any intervention in market processes is fatal;
• the main regulator is the issue of money;
• waiver of short term monetary policy replacing it with long-term measures.

From the point of view of monetarism and economic regulation, in accordance with the theory, money is the main sphere that determines the order of movement and development production processes. The demand for money is constantly growing, which requires that it be matched with the supply.

To do this, there must be a gradual increase in the money supply in circulation. At the same time, state regulation is reduced to control over the circulation of money.

It is important to note: Monetarism is the diametrical opposite

Who is the founder of monetarism

The founder of the theory of monetarism is Milton Friedman. This American economist was the head of the Chicago school of the neoclassical revival. However, the name itself was coined by Karl Brunner.

Friedman's theory of monetarism began with, despite the fact that the views of representatives of these models on government intervention are diametrically opposed. At the beginning of his career, M. Friedman advocated economic regulation, but later he came to the conclusion that intervention in national economy not allowed.

Monetarism: representatives

Among economists, such representatives of the theory of monetarism as Alan Greenspan, Philip D. Kagan, A. Schwartz, M. Thatcher and others are known.

Today monetarists use a modified approach. It is characterized by more extensive state intervention in case of market instability.

Monetarism(English) monetarism) is a macroeconomic theory, according to which the amount of money in circulation is a determining factor in the development of the economy. One of the main directions of neoclassical economic thought. Originated in the 1950s as a series empirical research in the field of money circulation. Despite the fact that the founder of monetarism is M. Friedman.

Essence of monetarism

The focus of the representatives of this school is the problem of the relationship between the money supply and the volume of production. In their opinion, banks are the leading instrument for regulating economic processes. The changes they cause in the money market are transformed into changes in the market for goods and services. Therefore, monetarism is the science of money and its role in the process of reproduction.

Monetarism emerged in the 1950s. twentieth century, however, the role of monetarist theory intensified in last quarter XX century, when it was discovered that the Keynesian methods of economic regulation fail. If Keynes focused on unemployment, employment and economic growth, then from the mid-70s. the situation has changed. Now the task of regulating inflation has come to the fore. Rapid inflation caused a breakdown in the economy, a fall in output and significant unemployment. Stagflation arose, i.e. decline and stagnation of production with a simultaneous rise in inflation. A reassessment of regulatory methods and theoretical concepts began. Among economists, the slogan "back to Smith" became popular, which meant the rejection of methods of active intervention and regulation, the hasty development of a new doctrine - monetarism and "supply-side economics".

In science, they began to talk about the "monetarist counter-revolution", meaning the uprising against the "Keynesian revolution". Neo-conservatism won in politics. The founder of monetarism is Milton Friedman (born in 1912). His most important works are: « Quantity Theory of Money», « Capitalism and freedom».

The starting points (postulates) of monetarism are as follows.

1. The market economy has stability, self-regulation and the desire for stability. The market competition system ensures high stability. Prices act as the main tool for correcting in case of an imbalance. Disproportions appear as a result of external interference, errors state regulation. Consequently, monetarists rejected Keynes' claim that government intervention in the economy was necessary.
2. Priority of monetary factors. In Keynesian models, money plays a purely passive role and is either not involved at all, or its total mass is given from the outside. Monetarists believe that among the various instruments that affect the economy, preference should be given to monetary instruments. It is they (and not administrative, not tax, not price methods) that are best able to ensure economic stability.
3. Regulation should be based not on current, but on long-term tasks, since the consequences of fluctuations in the money supply do not affect the main economic parameters immediately, but with some delay in time.
4. The need to study the motives of human behavior. " The market is mutual interest Friedman says. - The essence of the market is that people gather and reach an agreement". Personal initiative, active actions of people are important. By studying the motives of people's behavior, it is possible to build economic forecasts.

Theory of monetarism

Friedman's concept is based on the quantity theory of money, although his interpretation differs from the traditional one.

• Firstly, if earlier the velocity of circulation of money was not given much importance, then monetarists are developing this theory on purpose.
• Secondly, among the neoclassicals, the demand for money did not take into account the velocity of money circulation; among the monetarists, both parameters were functionally related.
• Thirdly, the usual price theory (balance of supply and demand) is applied to the demand for money.

In Keynesian theory, money plays a secondary role. The money in it is inserted into a rather long transmission mechanism: a change in credit policy > a change in the reserves of commercial banks > a change in the money supply > a change in the interest rate > a change in investment > a change in the nominal net national product (NNP).

According to Keynesians, in this chain, monetary policy turns out to be an unreliable means of stabilization. Monetarists, on the contrary, are convinced of the high efficiency of monetary policy. They offer a different chain of causation from the Keynesians between the money supply and the level of economic activity: change credit policy> change in commercial bank reserves > change in money supply > change in aggregate demand > change in nominal NNP.

Monetarists emphasize that the wealth that people possess exists in various forms: in the form of money, securities, real estate, etc. The value of some types of wealth increases, others - falls. Everyone seeks to increase his wealth and decides in what form it is more expedient to store it. The need for money is explained by their high liquidity, but the possession of money as such does not bring income.

Why does society need money? They serve as a means of circulation of goods, another motive is the desire to have a reserve.

How much money do people want to have? Friedman says the question can be put differently: how much of their portfolios people want to keep in liquid form, rather than in other types of assets"? Obviously, the part that is necessary to ensure purchases (payment for goods) and for cash reserves (minimum).

The need for money is the demand for money. He is relatively stable. It is influenced by three factors: the volume of production; absolute price level; the velocity of circulation of money, depending on their attractiveness (the level of interest rate).

Supply is the amount of money in circulation. It is quite variable, it is set from the outside, and is not determined by economic factors, although they influence the decisions made. The money supply is regulated by the central bank.

The demand for money and the supply of money are the initial parameters under the influence of which the monetary equilibrium is formed. It is connected with the processes taking place in the commodity market.

The relationship between money and commodity markets is viewed differently by monetarists and Keynesians: Keynes did not really appreciate interest rate as a factor affecting aggregate demand; monetarists attach significant importance to the monetary factor and the interest rate - they associate the demand for goods and investments with cash flow. Changes in the quantity of money and the velocity of money affect aggregate demand. More money supply means more demand for goods. With an increase in the money supply, prices rise, and this stimulates producers to expand the volume of production, increase output.

Thus, monetarists proceed from the fact that the main function of money is to serve as a financial basis and the most important stimulator of economic development. An increase in the money supply through the banking system affects the distribution of resources between industries, "helps" technical progress, and helps maintain economic activity.

Monetarists carefully analyzed inflation. They define it as a purely monetary phenomenon. The cause of inflation is an excess of money supply: a lot of money - few goods».

Inflation is related to expectations of how things will turn out in the future. Monetarists distinguish between two types of inflation: expected (normal) and unforeseen (not in line with forecasts). With expected inflation, equilibrium is achieved in the commodity market: the rate of price growth corresponds to the expectations and calculations of people. With unforeseen inflation, various violations occur, unemployment increases. The conclusion is drawn: it is necessary to block the channels that generate unforeseen inflation. It is necessary to eliminate the state budget deficit, limit the pressure of the trade unions, and reduce public spending.

According to monetarists, adjusting interest rates to stabilize investment is a misguided goal, as it can fan the fire of inflation and make the economy less stable. The monetarists believe that the governing monetary institutions should stabilize not the interest rate, but the growth rate of the money supply.

Friedman derives the rule that the money supply should expand annually at the same rate as the annual rate of potential growth of the gross national product, i.e. the money supply should steadily increase by 3-5% per year. This, according to monetarists, eliminates main reason instability of the economy - the volatile and unpredictable impact of counter-cyclical monetary policy.

The theoretical disputes between monetarists and Keynesians were not resolved by the final victory of one direction over the other. A sharp line cannot be drawn between them. Both theories are based on market conditions, although they have different approaches and recommendations.

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