Monetarism Name of the student Name of the Professor Name of the Course Name of the University Date Monetarism Monetarism is an economic theory formulated by Milton Friedman and mainly focuses on the macroeconomic effects and importance of the role of government in maintaining money supply in circulation. This theory proposes that the amount of money in circulation impacts the overall economy in terms of output, inflation and price level of commodities. The sources of information for this paper are secondary in nature. The secondary resources are websites, books, journal articles and opinion papers pertaining to the theoretical concepts. The scope of the paper confines to the academic application and should be used only in the consideration of the practical variables applicable to the industry. The monetarists believe that monetary policy should be made by the government and should always be based on the targeting the growth rate rather than the discretionary monetary policy. This theory argues that the central bank plays an important role in maintaining the money supply and it should focus on the maintaining the price stability while making the monetary policy because that excessive money supply always results in inflation. Monetarism is basically rooted into the hard money policies in 19th century and the monetary policies of John Maynard Keynes. Keyes mainly focused on the value stability of money according to which sufficient supply of money led to the alternate currency and collapse leading to panic. Friedman mainly focused on stability of price which is attained when there is equilibrium between demand and supply of money. According to Friedman, the money supply should automatically be increased according to a fixed percentage per year which is also called as fixed monetary rule or Friedman k-percent rule. According to this rule, the increase in money supply could be determined by software application and that can anticipate all the money supply changes. The active manipulation of money supply or increase will cause more destabilization than stabilize it. In 1965 Milton Friedman restated the quantity theory of money according to which demand for money is governed by the certain number of variables. When the money supply expands the people of the country do not hold the money in bank balances but would put that money into the economy which will increase the money spent on every commodity disturbing the price balance. This is because the commodity will hold less value as compared to when people had less money. The price of the commodity will rise and aggregate demand will increase. Similarly, when the money supply reduces people save the money and the overall spending decreases leading to decrease in demand and fall in price. The application of theory of Monetarism was seen in 1979 when Federal Chief Paul Volker fought inflation by reducing the money supply and in result he was able to create price stability. The his ...

1. Monetarism
Name of the student
Name of the Professor
Name of the Course
Name of the University
Date
Monetarism
Monetarism is an economic theory formulated by Milton
Friedman and mainly focuses on the macroeconomic effects and
importance of the role of government in maintaining money
supply in circulation. This theory proposes that the amount of
money in circulation impacts the overall economy in terms of
output, inflation and price level of commodities. The sources of
information for this paper are secondary in nature. The
secondary resources are websites, books, journal articles and
opinion papers pertaining to the theoretical concepts. The scope

2. of the paper confines to the academic application and should be
used only in the consideration of the practical variables
applicable to the industry.
The monetarists believe that monetary policy should be made by
the government and should always be based on the targeting the
growth rate rather than the discretionary monetary policy. This
theory argues that the central bank plays an important role in
maintaining the money supply and it should focus on the
maintaining the price stability while making the monetary
policy because that excessive money supply always results in
inflation.
Monetarism is basically rooted into the hard money policies in
19th century and the monetary policies of John Maynard
Keynes. Keyes mainly focused on the value stability of money
according to which sufficient supply of money led to the
alternate currency and collapse leading to panic. Friedman
mainly focused on stability of price which is attained when
there is equilibrium between demand and supply of money.
According to Friedman, the money supply should automatically
be increased according to a fixed percentage per year which is
also called as fixed monetary rule or Friedman k-percent rule.
According to this rule, the increase in money supply could be
determined by software application and that can anticipate all
the money supply changes.
The active manipulation of money supply or increase will cause
more destabilization than stabilize it. In 1965 Milton Friedman
restated the quantity theory of money according to which
demand for money is governed by the certain number of
variables. When the money supply expands the people of the
country do not hold the money in bank balances but would put
that money into the economy which will increase the money
spent on every commodity disturbing the price balance. This is
because the commodity will hold less value as compared to
when people had less money. The price of the commodity will
rise and aggregate demand will increase. Similarly, when the
money supply reduces people save the money and the overall

3. spending decreases leading to decrease in demand and fall in
price.
The application of theory of Monetarism was seen in 1979 when
Federal Chief Paul Volker fought inflation by reducing the
money supply and in result he was able to create price stability.
The historical application of Monetarism could have been in the
Great Depression of 1930 which was a result of contraction of
money supply and not the lack of investment as opposed to what
Keynes proposed and thus the inference of the theory was that
the inflation is almost always caused by the money supply and
hence fundamental challenge to Keynesianism was presented in
1970s.
The Friedman’s model suggests that the fiscal spending creates
slows down the economy by increases interest rates as it creates
present consumption. It does not have any real effect on total
demand and there is no real effect on demand because demand
mainly shifts from investment area to the consumer sector.
The current conclusion of the theory has been that central bank
policy has been the main reason behind major inflationary
episodes in the history and the primary drive behind the
excessive easing of federal bank policy is to finance the fiscal
deficits by the federal government. Hence, reduction of
government spending is the single most important target to
govern the limitless economic growth.
During the great Recession of 2007, Alan Greenspan came
under scanner for handling the monetary policy and he argued
that the Monetarism cannot applied in the doctrinaire form and
there should be some flexibility in approach when handling the
crisis situations. In 2000, Greenspan raised interest rates many
times and these were believed to be causing the dot com bubble
burst. In 2004-2006 the excessive liquidity caused the lending
standards to deteriorate and thus there was another crisis of
housing bubble. Current application of the theory is followed as
a modified form of monetarism where the broader range of
intervention is possible along with the short term instability in
the market.

4. In European economy, the mare traditional approach to the
monetarism is follows with much tighter control on the inflation
and spending targets which are mandatory as per the Economic
and Monetary Union of European Union to support Euro.
The main argument against Monetarism is the liquidity trap
which is experienced by Japan. The formal Federal Chief Ben
Bernanke argued that expansion of money supply can be used as
a response to zero interest rate conditions.
References
Brunner, Karl, and Allan H. Meltzer, (1993). Money and the
Economy: Issues in Monetary Analysis, Cambridge.
Friedman, Milton, and David Meiselman, (1963). The Relative
Stability of Monetary Velocity and the Investment Multiplier in
the United States. Stabilization Policies, pp. 165–268.
Johnson, Harry G., (1971) The Keynesian Revolutions and the
Monetarist Counter-Revolution, American Economic Review,
61(2), p. p. 1–14. p. p. 72 – 88.
PHILOSOPHICAL PRINCIPLES AND PERSPECTIVES
ETHICAL PRINCIPLES
A) UNIVERSALISTS: the fundamental principles of ethics are
universal, unchanging and eternal,
REGARDLESS OF THE
CIRCUMSTANCES.

5. B) RELATIVISTS: moral principles are relative to a
PARTICULAR
person, society, or situation.
C) NIHILISTS: everything is completely arbitrary; no purpose/
meaning in life; only power, strength, and
sheer
survival matter.
D) UTILITARIANS: an action is right if it produces the
greatest
amount of good for the greatest number
of
people.
RELIGIOUS, CULTURAL, AND MORAL PHILOSOPHIES
A) BIOCENTRISM: all living things are held to be worthy of
respect.
Examples:
Buddhism
Shintoism
Taoism
Shamanism
B) ANTHROPOCENTRISM: humans are masters of the world
with a unique set of rights (e.g., to
control and/or exploit nature).
Examples:
Christianity
Judaism
Islam

6. C) STEWARDSHIP: the responsibility to care for and manage
a
particular place (e.g., partners in nature
rather than masters of it).
Examples:
Christianity
Judaism
Islam
D) ECOFEMINISM: humans relationship to nature should be
non-
dominating and non-hierarchical.
Ecofeminists
are concerned less with rights,
obligations,
ownership, and responsibilities and
more with
care, appropriate reciprocity, and
kinship. To
ecofeminists, domination, exploitation,
and
mistreatment of women, children,
minorities,
and nature are connected and
reinforcing.
RELIGIOUS, CULTURAL, AND MORAL PHILOSOPHIES
(continued)
ENVIRONMENTAL ETHICS
ENVIRONMENTAL ETHICS are concerned with the moral
values and ethical principles demonstrated in the relationships
between humans and the environment (e.g., the world around

7. us).
They are often based on the ethical principles and moral
philosophies outlined previously and are used to address the
next 6 topics.
BASIC DEFINITIONS
ENVIRONMENTAL JUSTICE
SOCIAL JUSTICE
THE NEXT SIX SLIDES DEFINE IMPORTANT CONCEPTS
AN ENVIRONMENTAL SCIENTIST NEEDS TO
UNDERSTAND AND WORK TO SOLVE.
ENVIRONMENTAL RACISM
TOXIC COLONIALISM
NIMBY
LULU
ENVIRONMENTAL RACISM
ENVIRONMENTAL RACISM results from decisions that
restrict certain people or groups of people to polluted or
degraded environments on the basis of race
ENVIRONMENTAL JUSTICE
ENVIRONMENTAL JUSTICE recognizes that access to a clean,
healthy environment is a fundamental right of all human beings.
SOCIAL JUSTICE
SOCIAL JUSTICE involves equitable access to resources and
the benefits derived from them. Social justice provides a

8. system that recognizes inalienable rights and adheres to what is
fair, honest and moral.
TOXIC COLONIALISM
TOXIC COLONIALISM describes the behavior of developed
nations exporting toxic wastes to poor or developing nations. It
is also called GARBAGE IMPERIALISM.
LULU AND NIMBY
LULU stands for locally unwanted land use such as sanitary
landfills, toxic waste dumps, airports, etc.
LULUs often lead to NIMBYs which literally stands for “not in
my backyard” and are protests against the LULU.
QUIZ ON PHILOSOPHICAL PRINCIPLES AND
PERSPECTIVES
1. Name some issues that could be LULU’s and generate
NIMBY’s in the future.
2. Do you believe that toxic colonialism is ethical and moral?
Why or why not?
3. Based on this lecture presentation, how would you classify
the recent Flint, Michigan, water crisis? Explain your
reasoning.
4. How should humans interact with the Earth’s plant and
animal resources? Explain your reasoning from one of the 4
philosophies explained in slides #3 and #4.