Money and credit - Ivanov V.М.

8.3. Monetary theory at the present stage

Recognition of the limitations of the method of classical quantitative theory formed the basis of one of the main trends in the modern theory of money and money circulation - the school of monetarism. Undoubtedly, the largest figure among the representatives of this school is M. Friedman.

M. Friedman with his associates developed a modern quantitative theory, modernizing the classical canons in two ways. First, this theory considers the velocity of money as a variable, rather than a constant, and allows you to predict the behavior of this variable. Modern quantitative theory also considers the interest rate (the rate of interest) and the expected rate of inflation as two main factors determining the velocity of money. Secondly, the modern quantitative theory allows asynchronous interrelation between the money supply, nominal and real GNP, and also the absolute price level.

The monetary policy strategy of the followers of the monetarist school is the implementation of a permanent, predictable monetary policy, free from illogical changes in the course. The constant increase in the circulating money supply, approximately equal to the 3% growth rate of real output, characteristic of long-term time intervals, is the best monetary policy from the point of view of most monetarists.

An important contribution to the development of modern monetary theory was made by J. Keynes, who proposed his own approach to economic processes in The General Theory of Employment, Interest and Money (1936).

First, J. Keynes considered the speed of money circulation in the income movement as a variable amount, changing in aggregate with changes in incomes, rate of interest and other parameters of the economy. Secondly, he considered the influence of the interest rate on investment policy as a lever through which the terms of monetary circulation affect output and employment in the economy as a whole.

One of the conclusions of J. Keynes is that in the abyss of depression, monetarist policy can lose huge opportunities to influence the general economic situation. This conclusion led the followers of J. Keynes to the famous thesis: "Money does not matter." Such views on the inefficiency of monetary policy and the need to regulate and stimulate the economy through a change in the tax system and the structure of public spending have led to a long conflict between Keynesians and monetarists, which continues today.

Today, the theoretical models considered have acquired synthetic forms, including common elements. The modern theory of synthesis sets economists to a less optimistic mood, depriving them of the former confidence in their ability to ensure the prosperity of the economy and to defeat inflationary processes. But at the same time, the proposed model gives us hope that in the future it will be possible to avoid previous mistakes in the implementation of macroeconomic policies made by little-known predecessors.