monetarism
By the late 1960s, Keynesian confidence was high, but a quiet rival was building. Economist Milton Friedman pointed at one variable that mainstream Keynesians had downplayed: the amount of money sloshing through the economy. His famous claim was that 'inflation is always and everywhere a monetary phenomenon' — when prices rise across the board, it is because the money supply grew faster than the goods to buy with it. Too much money chasing too few goods. That focus on money as the master lever of the economy is monetarism.
Monetarism, led by Milton Friedman and the Chicago school from the 1950s onward, builds on the quantity theory of money, often written as MV = PQ (money supply times its velocity equals the price level times real output). If the velocity of money is fairly stable, then changes in the money supply (M) drive changes in prices (P) and, in the short run, output (Q). Monetarists argued that the central bank should not try to fine-tune the economy with frequent activist moves — those usually arrive too late and do harm because monetary policy works with 'long and variable lags'. Instead, it should make the money supply grow at a slow, steady, predictable rate, roughly in line with long-run growth, and let markets handle the rest.
Monetarism mattered enormously: it broke the Keynesian monopoly, correctly warned that loose money causes inflation, and shaped the inflation-fighting policies of the late 1970s and 1980s, which did tame runaway prices. Its lasting legacy is that central banks now take the money supply and inflation expectations seriously. But strict monetarism fell out of favor for honest reasons. The link between the money supply and prices proved looser and less stable than the simple theory implied (velocity wandered, and money became hard to define and measure as finance evolved), so most central banks abandoned fixed money-growth rules in favor of targeting interest rates and inflation directly. Monetarism's core warning survives even though its mechanical policy rule did not.
Friedman's slogan 'inflation is always and everywhere a monetary phenomenon' captures monetarism: print far more money than the economy grows, and prices climb. In MV = PQ, if M jumps while real output Q is steady, the price level P rises.
Too much money chasing too few goods lifts the price level.
Strict monetarism fell out of favor: the money-to-prices link proved looser than the simple theory implied (velocity wandered, money got hard to define), so central banks dropped fixed money-growth rules and now target interest rates and inflation. The core warning survives; the mechanical rule did not.