Origins of Monetarism (1950s–1960s)

Monetarism emerged in the 1950s–1960s, led by Milton Friedman and Anna Schwartz at the University of Chicago. Their landmark 1963 book, A Monetary History of the United States, 1867–1960, showed that major economic swings were closely tied to changes in the money supply. They argued that inflation resulted from excessive money growth and that the Great Depression was driven by a severe monetary contraction, which they termed the Great Contraction.

Monetarism Tested: Inflation and Volcker (1970s–1980s)

Monetarism gained prominence during the high inflation of the 1970s, when Friedman’s warning that sustained inflation stemmed from excessive money growth proved correct. Its most dramatic policy test came after Paul Volcker became Fed Chair in 1979. By sharply tightening monetary conditions and pushing interest rates to nearly 20% in 1980, the Federal Reserve succeeded in breaking double-digit inflation.

Monetarism Today and My Perspective

Central banks may change their operating frameworks—from money targets to inflation targets—but they cannot escape this basic truth. As long as money exists, excessive money growth will produce inflation, and disciplined monetary control will remain the foundation of economic stability. Monetarism will never go out of date, because:

Inflation is always and everywhere a monetary phenomenon