The Monetarist School has drawn comparisons to the board game Monopoly when discussing the importance of money in the economy. Just as players need fake money to keep score in the game, members of the Monetarist School believe that money is essential for the real economy to function. However, they have mistakenly applied this concept to the economy as a whole.
Leading monetarist thinkers Steven Hanke and John Greenwood argue that the Federal Reserve is not supplying enough money, predicting a recession in 2024 based on a 4.5% contraction of M2 since March 2022. Despite Milton Friedman’s admission that the quantity theory of money is flawed, his disciples, including Hanke and Greenwood, continue to advocate for increased money supply.
Monetarists believe that central banks must constantly regulate the money supply for economies to prosper, but this notion is flawed. In reality, economies do not grind to a halt without government intervention, as the exchange of products for products drives the economy. The creation of money equivalents can be easily achieved, as demonstrated in a game of Monopoly.
Money in circulation is a natural market phenomenon that mirrors production, as the sole purpose of money is to facilitate the exchange of goods and services. Money in circulation is not a cause of economic difficulties, but rather an effect of a slow economy. Monetarists focus on symptoms of a lack of production, rather than addressing the root causes.
Production always brings money, as producers bring their goods and services to other market participants who offer trusted forms of money in exchange. The circulation of money is a reflection of production, as individuals accept currencies for their labor or goods based on their perceived value. Monetarists overlook the fact that the quantity of money is determined by production, and planning the money supply is an act of conceit comparable to Soviet Five Year Plans.
In conclusion, the analogy of Monopoly highlights the misguided beliefs of the Monetarist School regarding the role of money in the economy. Money is not the driving force behind economic growth, but rather a medium of exchange that facilitates transactions based on the value of goods and services. Monetarists should reconsider their focus on increasing the money supply and instead address the underlying causes of economic difficulties.
