77. KEYNSIANISM AND MONETARISM

The most common directions in regulating the economy of the state are Keynesianism and monetarism.

The main postulates of the concepts of the monetarist school are the following:

1) the market is capable of self-regulation;

2) the economy itself will establish the level of production and employment;

3) money supply - the reason for the rise in prices and changes in the market situation;

4) the main problem is inflation;

5) a stable monetary policy is needed;

6) budget deficit - the cause of inflation;

7) monetarism - the theory of economic equilibrium. Keynesianism entered life in the 30s. XNUMXth century, when an Englishman J. Keynes published a book "The General Theory of Employment, Interest and Money". Theory Keynes brought the United States out of the crisis and resumed economic growth.

Keynes proceeded from the fact that the free market system lacks an internal mechanism that ensures macroeconomic equilibrium. The imbalance between savings and expected investments causes a decrease in business activity, which in turn intensifies inflationary processes and affects the unemployment rate. According to this theory, changes in aggregate inventories of consumer and investment goods mainly affect the level of production and employment. Therefore, Keynesianism proclaims active government intervention in the economy through fiscal policy (flexible changes in tax rates and government spending).

The main postulates of the concepts of the Keynesian school are the following:

1) the need for government intervention;

2) employment depends on aggregate demand;

3) the money supply is neutral to production;

4) the main problem is unemployment;

5) the need for a flexible monetary policy;

6) budget deficit - a way to stimulate demand;

7) Keynesianism - the theory of economic growth.

Monetarists believe that the market system is able to automatically achieve macroeconomic equilibrium. Flexibility in prices and wage rates ensures that changes in aggregate spending will affect the prices of goods and resources rather than output and employment levels.

The essence of monetary policy - in regulating the volume of money supply to stabilize the national market.

Monetarists announce government regulation harmful for the development of entrepreneurial initiative, destabilizing the economy and initially bureaucratic. Therefore, they call for minimizing state intervention in the economy, allowing only the implementation of fiscal policy.

However, it would be wrong to draw a sharp line between these two approaches to the problem of economic regulation. Both theories are constructed in relation to the conditions, first of all, of a market economy. To a certain extent, they complement each other, making up the theory of determining the total income.

Keynes justifies quantitative dependence of income on expenses, Friedman - dependence of income on money. However, there are significant differences between the approaches of Keynes and Friedman.

Each of these methods has its pros and cons, so the specific choice depends on the system of scientific and methodological preferences chosen by the respective governments. There is no universal rule for regulating the economy.

Author: Tatarnikov E.A.

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