Monetarism shifts preoccupation from fiscal policy to monetary policy. Money supply and changes therein becomes a major determinant of the level of economic activity. Fiscal policy is not only counterproductive, but often ineffective and slow at producing results. Based on the Quantity Theory of Money (that was propounded by many earlier writers including David Hume and Irving Fisher). Fisher's Quantity Theory is expressed as MV = PT, where V and T are taken to remain stable except in the longer term, and thus directly relates M to P. Inflation is the result of monetary conditions. Stricter monetarists such as Friedman argue that 'inflation is always and everywhere a monetary phenomenon'. Keynes does not dispute the fundamental validity of the Quantity Theory but argues that V can vary in response to changes in M. In his Treatise on Money he argues that at equilibrium (where price stability is achieved) savings and investment must balance. Thus total amount of money is not the critical factor, rather the flows of specific amounts of money (namely savings and investment). On the other hand, fanatical 'fiscalists' argue that 'money doesn't matter'.

Milton Freidman
Chicago School. The Counter-revolution in Monetary Theory, a lecture at University of London 1970. Monetary versus Fiscal Policy 1968 (with W. W. Heller), The Optimum Quantity of Money 1969. A Monetary History of the United States 1867 - 1960 1963 ( with A. J. Schwartz) is an effort to give a historical foundation to his theories. He argues fervently for the monetary causes of inflation. However, he is against discretionary management of money supply, because interrelationships of money supply and prices are not understood. Thus a stable growth path for money supply is proposed as the best means of guaranteeing economic stability. He develops the 'Non-Accelerating Inflation Rate of Unemployment' or NAIRU. He highlights the variable lags between monetary policy action and effect, and postulates that a consumer's expenditure is determined largely by his or her 'lifetime earnings expectation'.

Don Patinkin
Money, Interest and Prices 1956. Outlines early monetarist thoughts.