What are the main differences between classical monetarism and modern monetarism?

Monetarism and neoclassical macroeconomics

Modern monetarism reached its peak in the 1980s. Since the mid-1980s, with the development of monetarism, a "new monetarist" (Tobin called it "Monetarism II" or "Rational Expectation School") has appeared in the western economic theory circle, and its main representative is Robert? Robert lucas, Thomas? Thomas Sargent, Neil? Neil Wallace and Robert? Robert barro, etc. As the continuation and development of monetarism, the school adopted and developed the rational expectation viewpoint put forward by the western scholar Muse in 196 1, and formed a series of statements contrary to traditional Keynesianism. Because a series of statements of rational expectation school are generally consistent with traditional economics before Keynes appeared, western economics has returned to the traditional state considered as "classical school", so rational expectation school is also called neoclassical macroeconomics school.

Monetarism is the theoretical origin of neoclassical macroeconomics. Neoclassicists adhere to the theory of currency neutrality. "Currency neutrality" is a brief description of the theory of money quantity, that is, the amount of money in circulation only affects the price level in the economy, but not the actual output level. Lucas, Sargent, Wallace and others applied the basic principles of neoclassicism, such as market liquidation, rational expectation, natural unemployment rate hypothesis and the theory that only real variables are important, to the standard macroeconomic model, and came to the famous proposition of "policy ineffectiveness", that is, monetary policy could not systematically affect actual output even in the short term.

Friedman believes that on the surface, the reason of stagflation comes down to "political and institutional arrangements", that is, the capitalist economy itself has a natural rate level. It is the intervention of the state that makes inflation unpredictable and leads to stagflation. Friedman's stagflation theory is based on the assumption of natural unemployment rate, the premise of which is people's expectation of the future. The adjustment of economic behavior based on "expectation" is an important guarantee for restoring and maintaining "natural interest rate level". Friedman's thought laid the necessary theoretical preparation for the formation and development of rational expectation school.

Rational forecasters believe that all monetary growth is predictable. And it can be expected that the growth of money is neutral. Only unpredictable monetary growth can affect the real economy, and "unpredictable" is actually impossible. Therefore, "changing the rules of money growth rate" is the only feasible policy of monetary policy. Acknowledging the monetary neutrality caused by the expected monetary growth actually denies the dynamic role of monetary policy, which provides a more sufficient theoretical basis for Friedman's "single rule" monetary policy.

In a word, from the aspects of ineffective macroeconomic policies, adaptive expectations's error theory and opposition to Keynesian "fine-tuning" policies, we can see the tendency of neoclassical macroeconomics: on the one hand, the rational expectation school and the neoclassical macroeconomics developed from it take the road of monetarism, but they are more economically liberal than monetarism; On the other hand, neoclassical economics has returned to the economic thought of "classical school" before Keynesianism.

However, from the development of macroeconomic analysis by neoclassical macroeconomists, we can see their synthesis of Keynesianism and monetarism. Lucas and Sargent once revealed that Keynesian model experienced "the failure of large-scale econometrics". Barrow also attributed the great loss of reputation of Keynesian model to the disappearance of Phillips curve in the mid-1970s. By the mid-1970s, neoclassicism had gained the upper hand, at least in the United States. The impact of supply shocks is being incorporated into mainstream models. This development led to the "empirical revival" of Keynesian model. Therefore, the influence of monetarism was absorbed into the existing theoretical framework, which led to the integration of Keynesianism and monetarism. Harry? Johnson foresaw this development long ago. He pointed out: "Monetary quantity theorists have begun to extend their efforts to the establishment of simultaneous equations and the estimation of economic relations. By doing so, they reached an important reconciliation with their opponents Keynesians in methodology. " However, as a result, neoclassical macroeconomists have exerted great influence on the development of macroeconomic analysis.