The cash economy is a branch of economics that is responsible for analyzing the functions of money as a medium of exchange and store of value. The basic objective is to analyze the total demand for money and the money supply.
It also deals with studying the effects of financial institutions and monetary policies on economic variables, which include the prices of goods and services, wages, interest rates, employment, production, and consumption.
His field of study is framed within macroeconomics. It allows you to understand how an economy works efficiently and how it can balance and grow through effective monetary policy.
Monetarism
Monetarism is the basic economic theory of monetary economics. This attributes to money a determining quality for the healthy functioning of the economy.
He considers that the amount of circulating money available in the market must be regulated, in order to avoid distortions in supply and demand and the growth of inflation.
One of the main representatives of this economic theory is the so-called Chicago School, whose main exponent is Milton Friedman, winner of the Nobel Prize in Economics in 1976.
This theory is opposed to the Keynesian current by maintaining that inflation is a phenomenon of a monetary nature, because there is more money in circulation than is necessary for the purchase of goods and services.
Consequently, monetarism proposes that the state should intervene in the market solely to fix and control the amount of money available in the economy.
He also argues that consumption is not related and driven by income in the short term, but in the long term.
Questioning
Monetarism as an economic current in its classic formula has been questioned since the 1990s in the United States.
Some economists consider that not all macroeconomic phenomena can be explained in monetary terms or as a consequence of monetary policy.
Proponents of monetary policy, such as economist Robert Solow, argue that the economic problems of the United States in the 1990s cannot be attributed to the failure of monetary policy, but to the stagnation and low productivity of key sectors of the economy, like retail.
Characteristics of monetarism
Monetarism indicates that governments and their economic authorities have the capacity and power to fix the nominal money supply, but cannot control its effects on prices if they exceed the available amount of circulating money.
Therefore, it is the people who finally decide what to buy and in what quantity, stimulating or not the rise in prices.
The main characteristics of this economic doctrine are:
- Postulates the free market and the non-intervention of the State in the economy.
- The amount of money in circulation is the cause of inflation.
- State interventionism is responsible for economic crises.
- Inflation is one of the main threats to the economy.
- By better regulating the allocation of resources, the market is stable by nature.
- Efficiency is affected by price instability.
- Permanent and stable monetary rules prevent political manipulations, create a stable economy and provoke favorable expectations.
References
- Gary S. Becker & William J. Baumol, 1952. "The Classical Monetary Theory: The Outcome of the Discussion,".
- Carl Menger, 1892. "On the Origin of Money," Economic Journal.
- Robert W. Dimand, 2008. "macroeconomics, origins and history of".
- AC Pigou, 1917. "The Value of Money." Quarterly Journal of Economics.
- Dr. Kent Matthews, Cardiff University. Monetary economics. Recovered from whystudyeconomics.ac.uk
- Monetarism. Consulted of economia.ws
- Monetarist school. Consulted of olea.org
- What is Money? Recovered from investopedia.com
- Economy. Consulted of en.wikipedia.org