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Money and credit - Ivanov V.M.

8.3. Monetary theory at the present stage

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

M. Friedman and his like-minded people developed a modern quantitative theory that modernizes classical canons in two ways. Firstly, this theory considers the velocity of money as a variable, not a constant, and allows you to predict the behavior of this variable. Modern quantitative theory also considers the interest rate (rate of interest) and the expected rate of inflation as two main factors determining the speed of money circulation. Secondly, modern quantitative theory allows the asynchrony of the relationship between money supply, nominal and real GNP, as well as the absolute price level.

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

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 work "The General Theory of Employment, Interest, and Money" (1936).

First, J. Keynes considered the velocity of money in the movement of income as a variable, changing in conjunction with changes in income, interest rates 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 money 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 politics can lose enormous opportunities to influence the general economic situation. This conclusion led the followers of J. Keynes to the well-known thesis: "Money does not matter." Such views on the inefficiency of monetary policy and the need to regulate and stimulate the economy by changing the tax system and the structure of government spending have led to a long conflict between Keynesians and monetarists, which continues to this day.

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