Monetarist Policies place great emphasis on controlling the money supply in order to control inflation. It also goes together with strict budgetary management and generally a belief in laissez faire – free market supply side policies.
Criticisms of Monetarism Include:
- Growth in the money supply is erratic due to structural change in economy making controlling the money supply meaningless.
- Controlling Money supply can lead to recession. For example, in the 1980s, the UK pursued strict Money supply targets but this caused a deep recession. This was because monetary policy was too tight trying to meet artificial money supply targets.
- Why not target inflation directly? If you want to control inflation, it makes more sense to target inflation directly rather than through the intermediary of the money supply.