Control of the Money Supply

Abstract

The Monetarist view is that the four strands of budgetary policy — monetary, fiscal, interest rate and credit policy — ought not to be regarded as a basis for manipulating the behaviour of economic agents. The argument is that microeconomic principles show the effectiveness of market forces in achieving an efficient allocation of resources; and that these considerations are not compromised by any wider consideration, macroeconomic in kind. In particular, Friedman has argued that by seeking to keep monetary disturbances to a minimum,

steady monetary growth would provide a monetary climate favourable to the effective operation of those basic forces of enterprise, ingenuity, invention, hard work and thrift that are the true springs of economic growth. (Friedman, 1968, p. 17)

The only way to avoid being driven by continuing inflation into a controlled and directed economy, and therefore ultimately in order to save civilisation, will be to deprive governments of their power over the supply of money. (Hayek, 1978, p. 129)