Neoclassical school of monetarism

With the advent of work on Keynes's "General Theory of Money, Employment and Interest," many of the issues of our time seemed to have been resolved. In the work the causes of economic crises, macroeconomic instability were determined, the methods of supporting economic development, the necessary monetary policy and the organization of investments were justified. At the same time, in the political sector, Keynesianism was in some ways a "bridge" that reliably linked the socialist and market economy with a simple principle of "state share" in regulatory processes. Thus, Keynes's ideas organically fit into the concept of the gradual rapprochement of the socialist and market system.

However, these approaches did not find support and understanding among the orthodox adherents of the free market, contributing to the restoration of social justice and economic equilibrium. Active criticism of Keynesianism came from followers of early classics, such as Smith, Malthus and others, and subsequently from their successors in the 19th and 20th centuries (Pigou, Marshall, Menger). At the same time, critics developed updated concepts. Thus, the neoclassical economic theory began to be formed .

The most widespread and justified today is the doctrine of monetarism. The second place in importance is the doctrine of the supply economy. It is also considered one of the areas of study.

Neoclassical school of economics, whose recognized leader is Friedman, promotes the principles of liberalism and market freedom. In his writings, the professor severely criticizes totalitarianism and the restriction of human rights.

The neoclassical school of monetarism was formed after a sufficiently long study by Friedman of America's monetary policy. The professor concluded that only money matters. Money, in his opinion, is the quintessence of the economic system. This is what determined the name of the doctrine - monetarism. This neoclassical school developed an idea based on Fisher's quantitative monetary concept. Friedman attached great importance to regulating the amount of money in circulation. He believed that this way one can achieve changes in the behavior of economic actors.

Friedman, complicating Fisher's concept that when the amount of money in circulation changes, prices change, he derives his equations. At the same time, he added additional components to the basic concept. In particular, his equations contained additional variables such as bond interest rate, rate of change in the price level, earnings per share and some other parameters. Thus, the neoclassical school of monetarism contained its provisions, which had significant differences from Keynesian interpretations.

Friedman believed that the main reason for nominal (monetary) income is a change in the circulation of the amount of money. In this connection, the relationship that exists between the first and the second is manifested with some time lag.

Thus, with a reduction in the amount of money, the production volume is reduced after six to twelve months. Then, after a gap exists between actual and potential production volumes, the price level is reduced, usually after another six or twelve months.

As a result, the size of the lag is about 1-2 years. The same lag occurs between the change in the amount of money and the indicator of bank interest. Raising the former reduces the initial rate of the second, which is connected with the desire of the owners of "extra" finances to get rid of them (finances). As a result, the purchase of bonds begins, with an unchanged number of which there is an increase in the price of them while reducing the bank's interest.

A certain part of the "extra" finance will be used to purchase consumer and investment goods, other types of securities. All this has a stimulating effect on increasing business activity. This is the basic concept advocated by the neoclassical school of monetarism.