Monetarism is the economic theory that emphasizes money supply as a major driver of economic activity, output, and especially prices over time.
Its modern form is closely associated with Milton Friedman, who argued that excessive growth in the money supply can produce inflation. Monetarists generally favor predictable monetary expansion and view central-bank control of money as more important than discretionary fiscal management for maintaining stability.
The school draws on the quantity theory of money, often summarized by MV = PY: money supply multiplied by velocity equals the price level multiplied by real output. Monetarists distinguish between short-run effects on production and longer-run effects, when changes in money growth are expected to show up mainly in prices.
Monetarism became especially influential during the 1970s, when high inflation challenged Keynesian policy assumptions. It later declined as a direct policy rule, with central banks increasingly steering economies through interest rates and inflation targets. The theory remains important in debates over inflation and monetary policy.