Editing Monetarism (section)

==Rise==
[[Clark Warburton]] is credited with making the first solid empirical case for the monetarist interpretation of [[business fluctuation]]s in a series of papers from 1945.<ref name="Cagan"/><sup>p.&nbsp;493</sup> Within [[mainstream economics]], the rise of monetarism started with [[Milton Friedman]]'s 1956 restatement of the [[quantity theory of money]]. Friedman argued that the [[demand for money]] could be described as depending on a small number of economic variables.<ref name="hilbertcorporation">{{cite journal |first=Milton |last=Friedman |year=1970 |title=A Theoretical Framework for Monetary Analysis |journal=[[Journal of Political Economy]] |volume=78 |issue=2 |pages=193–238 [p. 210] |jstor=1830684 |doi=10.1086/259623|s2cid=154459930 }}</ref>

Thus, according to Friedman, when the [[money supply]] expanded, people would not simply wish to hold the extra money in idle money balances; i.e., if they were in equilibrium before the increase, they were already holding money balances to suit their requirements, and thus after the increase they would have money balances surplus to their requirements. These excess money balances would therefore be spent and hence [[aggregate demand]] would rise. Similarly, if the money supply were reduced people would want to replenish their holdings of money by reducing their spending. In this, Friedman challenged a simplification attributed to Keynes suggesting that "money does not matter."<ref name="hilbertcorporation" /> Thus the word 'monetarist' was coined.

The popularity of monetarism picked up in political circles when the prevailing view of [[Neoclassical synthesis|neo-Keynesian economics]] seemed unable to explain the contradictory problems of rising [[unemployment]] and [[inflation (economics)|inflation]] in response to the [[Nixon shock]] in 1971 and the [[1973 oil crisis|oil shocks of 1973]]. On one hand, higher unemployment seemed to call for [[reflation]], but on the other hand rising inflation seemed to call for [[disinflation (economics)|disinflation]]. The social-democratic [[post-war consensus]] that had prevailed in [[First World|first world countries]] was thus called into question by the rising [[Neoliberalism|neoliberal]] political forces.<ref name="harvey1"/>

=== Monetarism in the US and the UK ===

In 1979, United States President [[Jimmy Carter]] appointed as Federal Reserve Chief [[Paul Volcker]], who made fighting inflation his primary objective, and who restricted the money supply (in accordance with the [[Friedman rule]]) to tame inflation in the economy. The result was a major rise in interest rates, not only in the United States; but worldwide. The "Volcker shock" continued from 1979 to the summer of 1982, decreasing inflation and increasing unemployment.<ref>Reichart Alexandre & Abdelkader Slifi (2016). 'The Influence of Monetarism on Federal Reserve Policy during the 1980s.' Cahiers d'économie Politique/Papers in Political Economy, (1), pp. 107–50. https://www.cairn.info/revue-cahiers-d-economie-politique-2016-1-page-107.htm</ref>

In May 1979, [[Margaret Thatcher]], Leader of the [[Conservative Party (UK)|Conservative Party]] in the [[United Kingdom]], won the [[1979 United Kingdom general election|general election]], defeating the sitting [[Labour Party (UK)|Labour Government]] led by [[James Callaghan]]. By that time, the UK had endured several years of severe [[inflation]], which was rarely below the 10% mark and stood at 10.3% by the time of the election.<ref>{{Cite journal |last=Healey |first=Nigel M. |date=1990 |title=Fighting Inflation In Britain |url=https://www.jstor.org/stable/40721141 |journal=Challenge |volume=33 |issue=2 |pages=37–41 |doi=10.1080/05775132.1990.11471411 |jstor=40721141 |issn=0577-5132}}</ref> Thatcher implemented monetarism as the weapon in her battle against inflation, and succeeded at reducing it to 4.6% by 1983. However, [[unemployment in the United Kingdom]] increased from 5.7% in 1979 to 12.2% in 1983, reaching 13.0% in 1982; starting with the first quarter of 1980, the UK economy contracted in terms of real gross domestic product for six straight quarters.<ref>{{cite web|title=Real Gross Domestic Product for United Kingdom, Federal Reserve Bank of St. Louis|date=January 1975|url=https://fred.stlouisfed.org/series/CLVMNACSAB1GQUK|access-date=December 16, 2018}}</ref>