“Monetarism” Is Confirmation That Economists Never Got The Joke

The resurgence of monetarism among some economists is a stark reminder that, despite their claims to precision and objectivity, they remain prone to the same ideological pitfalls as their predecessors. This notion relies on a simplistic understanding of economics, viewing the creation and distribution of money as a top-down process controlled by central banks.

Monetarists believe that central banks can dictate the amount of money in circulation, thereby controlling inflation and growth. However, this approach ignores the fundamental reality that production is the primary driver of economic activity, not monetary policy. In reality, the intricate web of exchange relationships created by production across countless industries, sectors, and geographic regions cannot be replicated by any central authority.

The idea that economists can grasp the infinite decisions taking place every millisecond is a testament to their hubris. This notion is further underscored by the fact that some on the right are attempting to revive monetarism despite its clear flaws. Their attempt ignores the lessons of history, particularly the failures of central planning in the Soviet Union.

Jon Hartley and his allies cherry-pick evidence and quotes from Milton Friedman, who himself admitted that monetarism was flawed. This selective reading of history is a hallmark of ideological dogmatism, where facts are bent to fit preconceived notions rather than being subject to rigorous scrutiny.

The real-world implications of this monetarist revival are twofold. It risks perpetuating the myth that central banks can somehow “fix” economic problems through monetary policy alone, ignoring the fact that production is the primary driver of economic growth and stability. Furthermore, it distracts from more pressing issues such as addressing income inequality, investing in infrastructure, and promoting sustainable development.

The recent appointment of Kevin Warsh as Fed Chair has sparked renewed interest in monetarism, with some hailing him as a champion of Friedman’s ideas. However, this reading of Warsh’s views is likely overly simplistic, given the complexities of his own economic thought. Ultimately, it doesn’t matter what he believes, as the truth remains that central banks cannot control the money supply in the way monetarists claim.

The resurgence of monetarism among some economists serves as a reminder that ideology can often trump empirical evidence and real-world experience. As we confront the complexities of modern economies, it’s essential to prioritize pragmatism over dogma, recognizing that production is the true driver of economic activity, not monetary policy. The attempts to revive this discredited theory are a misguided attempt to impose order on a fundamentally chaotic system – an endeavor that will only end in embarrassment.