Monetarism

The naive doctrine of monetarism which promulgated the theory that inflation control was a function of money supply control has lost credibility. Although governments may attempt to control the money supply, they never actually succeed, although they may achieve a disruption in employment and production growth. Monetarism has demonstrated that by attempting to restrict money flow, capital becomes excessively expensive, fueling inflation while at the same time causing economic stagnation because of negative impact on investment in increased production capacity. The chain of effects of monetarist policies in the USA and UK has encouraged instability in floating currencies abroad, flights of capital to the high interest countries, stagnating wages and increased costs of living.

If the purpose of economic activity is the maximization of money income; if all economic agents from workers to bankers are infinitely clever, capable of foreseeing all the contingencies and ramifications of what they do, and of choosing the best strategy to secure their ends; if each component of the economy necessarily experiences negative feedback – typically higher costs and prices as output expands – that prevents activity growing explosively and pulls the system to a point of balance; with these assumptions a free market will move to the best outcome for everyone, and foster individual freedom and responsibility. If, then, men and women work only to earn money then it follows that high social security benefits will deter them form gainful employment; it follows that the more people are paid, and the less they are taxed, the harder they will work. If industry is subsidized then the natural forces that distribute resources between competing industries will be inhibited. Indeed if any obstacle, such as regulation, is placed in the way of infinitely clever economic actors arriving at necessarily the best outcomes then, necessarily, the world is worst off. At the Santa Fe Institute, two Nobel prize winners are using super-computers to model a world in which "adaptively intelligent man" replaces "perfectly intelligent man". The resulting economic models produce booms and busts, inflation and unemployment – all in a free market. Market models with more realistic assumptions produce unstable and irrational results.