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Keynesianism Vs. Monetarism And Other Essays In Financial History


Monetarist economics is Milton Friedman's direct criticism of Keynesian economics theory. Simply put, the difference between these theories is that monetarist economics involves the control of money in the economy, while Keynesian economics involves government expenditures. Monetarists believe in the control of the supply of money in the economy and allow the rest of the market to fix itself. Keynesian economists believe that a troubled economy continues in a downward spiral unless something is done to drive consumers to buy more goods and services. Both of these macroeconomic theories directly impact the way lawmakers create fiscal and monetary policies. If both types of economists were equated to motorists, monetarists would be most concerned with adding gasoline to their tanks, while Keynesians would be most concerned with keeping their motors running.

Keynesian Economics Simplified

The economic terminology of demand-side economics is synonymous to Keynesian economics. Keynesian economists believe the economy is best controlled by manipulating the demand for goods and services, although, these economists do not completely disregard the role the money supply has in the economy and on affecting gross domestic product, or GDP. They do, however, believe it takes a great amount of time for the economic market to adjust to any monetary influence.

Keynesian economists believe in consumption, government expenditures and net exports to change the state of the economy. Fans of this theory may also enjoy the New Keynesian economic theory, which expands upon this classical approach. The New Keynesian theory arrived in the 1980s and develops some concepts the classical theory did not, such as government intervention and the behavior of prices. Both theories are a reaction to depression economics.

Monetarist Economics Made Easy

Monetarists are certain the money supply is what controls the economy. They believe that controlling the supply of money directly influences inflation. Additionally, monetarists believe that by fighting inflation with the supply of money, they can influence interest rates in the future. Imagine adding more money to the current economy and the effects it would have on business expectations and the production of goods. Now imagine taking money away from the economy. What happens to supply and demand?

Monetarist economics founder Milton Friedman believed monetary policy was so incredibly crucial to a healthy economy that he publicly blamed the Federal Reserve for causing the Great Depression. He implied it is up to the Federal Reserve to regulate the economy.

Different Economic Theories in Politics

Presidents and other lawmakers have applied multiple economic theories throughout history. Soon after the Great Depression, President Herbert Hoover failed in his approach to balance the budget, focusing primarily on the needs of businesses in a time of turmoil. President Roosevelt followed next. He was concerned with increasing demand and lowering unemployment. It is worth noting that Roosevelt's New Deal and other policies increased the supply of money in the economy. Events similar to the Great Depression nearly happened again in 2008. President Obama and other lawmakers decided to solve economic problems by bailing out banks and fixingunderwater mortgages for government-owned housing. In these instances, it appears elements of both theories were used to resolve national debt.

The World Economy and National Finance in Historical Perspective is a collection of essays and lectures by the distinguished economist, Charles P. Kindleberger. The main topic is the world economy of the past, present, and future, but the author also turns his deep historical understanding on a cluster of national financial problems faced by the United States and Germany.

The essays deal with the world economy and the place within it of the United States and Europe. Other topics treated include the succession of world economic leaders, and the spread of booms and crashes from one country to another, the quality of debt, financial intermediation and disintermediation, and the German inflation of 1919-23. In an important discussion of the United States' role in the world economy, the author places special emphasis on the responsibility that a country with such a leading economic role has of bringing about and maintaining economic stability.

This will appeal to economists, especially economic historians, and will also be of interest to the financial community.

Among the many books written by Kindleberger are The World in Depression 1929-1939; Manias, Panics and Crashes: A History of Financial Crises, and A Financial History of Western Europe. In addition, he has published several previous collections of essays including Europe and the Dollar; Economic Response, Comparative Studies in Trade, Finance and Growth; International Money; Multinational Excursions; Keynesianism vs Monetarism and Other Essays in Financial History; Marshall Plan Days; The International Economic Order: Essays on Financial Crisis and International Public Goods; and Historical Economics: Art or Science?

Praise / Awards

  • ". . . essential reading for aficionados of financial history and should take its place on every serious economist's bookshelf."
    --Economic Record

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