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Monetarists believe that fluctuations in economic conditions are caused by changes in the money supply. They link social spending to inflation and suggest that limiting social spending can reduce the possibility of inflation. Monetarists promote strategies to stimulate the money supply and restore flexibility in the labor market.
A monetarist is an individual who claims to understand that fluctuations in economic conditions are created when the money supply within that economy increases or decreases. The general concept of monetarism is often attributed to the work of Milton Friedman, who linked the flow of money in an economy to government efforts to control it. It is not uncommon for a monetarist to also take note of unemployment levels as a factor influencing the flow of money and therefore exerting a major impact on how a government structures its monetary policy.
In more simplistic terms, a monetarist usually accepts the theory that the level of social spending has a direct effect on the level of inflation that occurs within a given economy. This means that in situations where social spending is higher, the potential for inflation to rise is higher. If social spending were to be limited in some way, this would help reduce the possibility of inflation occurring, as there is less money being distributed freely throughout the economy.
As with the products of increased inflation, a monetarist will also often claim that the logical result of this economic condition is that there is less flexibility in the labor market. In other words, people will find it more difficult to locate and secure jobs that allow them to earn enough money to maintain their purchasing power during the inflationary period. At the same time, this period of inflation can undermine productivity, due to rising costs which can lead companies to reduce production and the number of workers needed to maintain it. With less disposable income to fuel the economy, it becomes stale and 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 in the labor market, making it easier for displaced workers to find fairly paying jobs and enable a decent standard of living. At the same time, inflation begins to decline as productivity increases and competition is restored in the market. While the theory of monetarism can be employed in rather simple and straightforward ways, there are also many adaptations of the underlying theory that a monetarist can develop in light of specific conditions existing within a given economy. Such approaches can be further tailored to fit a localized economy, such as within a state or parish; apply to a national economy; or even be used to address the problems of the world economy.
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