The Evolution of Economic Control: From Financial Stability to the Economics of Organised Scarcity
The Struggle Over Supply and Demand in the Post-Friedman Era Legacy
Reason Praxis | Make Sense in Economics
Friedman’s claim that inflation is purely a monetary phenomenon shaped global economic policy for decades, but it oversimplifies economic reality. Money, like any commodity, is governed by supply and demand, yet financial institutions and central banks have shifted economic power away from production toward a ‘financial stability’ narrative, enabling strategic imbalances of supply and demand, either directly or by proxy, which in turn trigger inflationary pressures.
Although these pressures can have many causes, the lack of state resilience and effective regulatory foresight can exacerbate these dysfunctions, leading to inflation that is not a product of genuine economic growth. Inflation, whether in the past or especially today, is driven not just by excess money but also by deliberate supply constraints and geopolitical disruptions.
The real issue lies in how supply and demand imbalances—whether natural or engineered—are managed, requiring a broader regulatory perspective beyond mere monetary interventions. This demands a broader perspective—one that recognises financial dominance as a strategic force reshaping economies, not merely for stability but as a driver of influence. The question is not whether adjustments are needed, but how they should be made.
From Financial and Inflation Stability Narratives to the Economics of Organised Scarcity
Plan
- A) Milton Friedman’s View on Inflation
- B) Money as a Commodity: from Supply and Demand Perspective to Economics of Organised Scarcity
- C) The Shift from Production-Centred Economics to Financial Domination: From Accumulation to ‘Excumulation’
- D) Conclusion and Further Thoughts: For a Power Shift in Economic Control
A) Milton Friedman’s View on Inflation
Milton Friedman famously stated in his 1970 lecture and later in The Counter-Revolution in Monetary Theory (1970) that “inflation is always and everywhere a monetary phenomenon,” a principle that became a cornerstone of monetarist economic thought. His argument was that inflation results from an excessive increase in the money supply relative to economic output. In his view, monetary policy, rather than fiscal policy or other external economic shocks, was the primary driver of inflation, and central banks had the responsibility of maintaining stability by controlling money supply growth.
Friedman’s perspective gained significant influence, particularly in shaping central banks’ emancipation from states and policies worldwide. His work helped establish the idea that inflation control should be the foremost concern of economic policymakers, leading to the widespread adoption of independent central banking systems.
However, while his view holds explanatory power in many cases, it presents a narrow understanding of economic dynamics, focusing on monetary factors while downplaying the complexity of supply and demand interactions beyond the financial system.
B) Money as a Commodity: from Supply and Demand Perspective to Economics of Organised Scarcity
A key limitation of Friedman’s framework is that it isolates money from the broader principles of supply and demand. Fundamentally, money itself is subject to these forces just like any other commodity. Central banks regulate liquidity by “printing” or “buying” money, adjusting interest rates, and intervening in financial markets, but these actions operate within the larger economic system where supply and demand determine value.
If we remove money as a transaction medium and return to a barter-based perspective, inflation, as defined by Friedman, would no longer exist in monetary terms. However, the core issue—imbalances in supply and demand—would persist, manifesting through resource scarcity, trade imbalances, or alternative valuation distortions. This perspective underscores that inflation is not purely a monetary phenomenon but a broader economic one, shaped by who controls the levers of supply and demand.
Moreover, economic and business strategies increasingly involve intentional disruptions to supply and demand equilibrium. Countries, institutions, and corporations manipulate access to resources and capital, shaping market conditions to gain strategic advantages.
This introduces the concept of “organised scarcity”—where controlling supply, rather than increasing productivity, becomes the dominant mechanism for influencing economic outcomes. Economics of Organised Scarcity’ refers to a particular worldview converted into economic policy within the games theory framework in which certain actors intentionally keep production below demand or flood supply with over-demand for various reasons, including price control, resource monopolisation, profits maximisation, or market/geopolitical leverage. This can take different forms: limiting investment in production capacity to avoid oversupply, restricting technological advancements that could increase efficiency, or postponing infrastructure improvements that could mitigate bottlenecks[1].
Beyond private sector actions, governments may also enforce scarcity directly or indirectly, for example, through restrictive regulations, quotas, customs taxes, but also by failing to anticipate and mitigate demographic-driven supply pressures, such as population growth straining housing and public services. These structural decisions contribute to inflationary pressures, shifting power towards those who control access to resources and capital.
Economics of Organised Scarcity – Examples
- OPEC and Oil Production Cuts (1973 & 2022) – A classic case of organised scarcity where supply was restricted to maintain high prices, influencing inflation and global markets.
- Housing Supply Manipulation – In many economies, the UK and London being a staggering illustration, restrictive zoning laws, delayed or deliberate underinvestment in housing by either the government or the private sector, insider lock-in tactics, and broader barriers to entry strategies (cf. J. Bain) keep property values and rents high, limiting affordability, keeping parts of the population in the renting trap which, incidentally, connects to the Maslow’s Pyramid.
- Some retailers and food distributors often engage in organised scarcity by putting pressure on logistics and suppliers, or destroying unsold food rather than redistributing it or lowering prices so that supply meets demand, i.e. everything is sold. Those who buy during the day pay for what gets wasted at the end of the business day. Many major supermarket chains restrict employees from taking or purchasing surplus food at a reduced price, even under the threat of termination. While some companies donate to food banks and charities or take part in parallel distribution circuits or digital solutions using mobile apps, the efficiency and sincerity of these programs remain debated[2], as they often serve as public relations efforts rather than structural solutions to food waste, sustainable savings, and resource allocation.
- Agricultural sector, where farmers intentionally destroy surplus production or stop producing to maintain price stability. This practice, often influenced by market structures or state subsidies, prevents oversupply from driving prices down, ensuring profitability for producers. In some cases, government policies incentivise production limits through subsidies rather than allowing natural market adjustments. While this protects farmers’ income, it also raises ethical concerns about artificial scarcity in a world where food insecurity remains a global challenge.
- Pharmaceutical Price Controls – Some life-saving drugs remain scarce or overpriced due to patent protections and restricted production, or tactical market withdrawals of certain medicines, despite the potential for wider availability.
The concept of ‘organised scarcity’ operates on a razor-thin legal boundary, where strategic market control can shift from legitimate business practice to unlawful manipulation depending on intent, scale, and regulation. While firms and industries can legally limit supply through patents, pricing strategies, or production quotas, the line is crossed when such actions distort competition, manipulate prices, or harm public access to essential goods. The distinction between legal market strategy and illegal market manipulation often hinges on regulatory oversight, jurisdiction, and ethical scrutiny, making enforcement to be believed as a challenge. As markets evolve, moreover, the debate over fair competition versus strategic control will continue to shape economic and legal landscapes without clear boundaries.
‘Economics of Organised Scarcity’ refers to a particular worldview converted into economic policy within the games theory framework in which certain actors intentionally keep production below demand or flood supply with over-demand for various reasons, including price control, resource monopolisation, profits maximisation, or market/geopolitical leverage.
Beyond Friedman’s statement, the forces of supply and demand remain central. The emphasis on financial stability and inflation control through central bank interventions often obscures the deeper economic distortions caused by supply and demand imbalances, whether through natural market fluctuations or deliberate manipulation.
While central banks target inflation at 2%, no universal scientific rationale justifies this mythological benchmark, and their policies often overlook deeper supply and demand dysfunctions[3]. Addressing these structural dysfunctions is key to understanding modern economic challenges.
C) The Shift from Production-Centred Economics to Financial Domination: From Accumulation to ‘Excumulation’[4]
One of the most significant consequences of Friedman’s influence has been the transformation of central banks into independent, powerful institutions with increasing autonomy from state control. While this move was initially explained as necessary for monetary stability and fighting inflation, it also set the stage for a shift from a production-centred economy towards one dominated by financial markets and their institutions.
Historically, economies were structured around the principles of supply and demand in tangible goods and services, with production as the central driver of growth. However, as central banks and financial institutions expanded their control over economic policy, financial stability—defined narrowly in terms of market liquidity and inflation control—became the primary concern. This shift effectively transferred power from governments and industrial sectors to financial institutions, allowing markets, rather than democratically elected bodies, to dictate economic policies.
Central banks now operate not just as regulators but as market participants, actively intervening through quantitative easing, bond purchases, and other mechanisms that prioritise financial stability over broader economic concerns such as income distribution, employment, or long-term industrial strategy: today, the ‘right’ industrial strategy tends to prioritise delivering expected profit rates to strategic (international) shareholders (hedge funds and other financial investors) over ensuring that production or service meets actual demand and regulatory requirements in the interest of customers and good governance[5].
The dominance of financial institutions has led to an economy where financial instruments and market stability often outweigh real productive capacity, reinforcing dependencies on monetary policy rather than fundamental supply and demand forces.
By focusing solely on financial indicators or delaying necessary action when decisive intervention is required[6], central banks and financial institutions risk exacerbating and deepening economic imbalances rather than addressing their root causes.
Ultimately, the issue is not merely monetary inflation but the broader dysfunction of supply and demand. As introduced in Part 2, the dysfunction of supply and demand—whether market-driven or external—plays a key role in inflationary pressures.
A failure of state preparedness and regulatory foresight exacerbates these disruptions, amplifying inflationary pressures.
D) Conclusion and Further Thoughts: for a Power Shift in Economic Control
Friedman’s monetarist framework laid the intellectual foundation for the “emancipation” of central banks from state control, reinforcing the role of financial markets as primary economic decision-makers. Over time, this has contributed to a shift in economic power, moving away from governments and industrial producers towards financial institutions and central banks.
This evolution raises fundamental questions about the balance of power in modern economies. By prioritising financial stability above all else, central banks and financial markets have restructured economic decision-making to serve capital flow efficiency rather than tangible economic production. This has resulted in a system where economic outcomes are increasingly dictated by those controlling financial mechanisms and the right and influence derived from them, rather than those engaged in direct production or trade and customers’ satisfaction.
This shift has significant geopolitical and economic implications. Nations with control over key resources, technological advancements, and financial infrastructures dictate global economic trends, reinforcing existing inequalities and dependencies. As resources take on an even greater role in global competition, the future may see strategic control over supply and demand and property rights broadly taken—rather than monetary policy alone—becoming the defining factor of economic power.
Thus, while Friedman’s view of inflation as a monetary phenomenon remains influential, it is ultimately a narrow lens through which to understand modern economic dynamics. A more comprehensive approach acknowledges that inflation, financial stability, and economic power are not just about money supply, but about the broader competition over control—whether through resources, technology, or financial institutions.
For policymakers and business leaders, the challenge is not just managing inflation but navigating an economic landscape increasingly shaped by organised scarcity, strategic control, and financial market dominance.
[1] “Potholes cost economy over £14bn a year” in England alone, Apr 2024, Localgov.co.uk
[2] Discussions and criticism on social media: https://expret.org/2019/01/20/pret-a-manger-food-waste/
[3] “About the 2% inflation target”, by Louis-Philippe Rochon, Full Professor of Economics, Laurentian University, Canada. Editor-in-Chief, Review of Political Economy. Founding Editor, Review of Keynesian Economics
[4] term coined in 2004 in fundamental research in economics on the transition from post-socialist toward market-driven economies, the case of Poland between 1980-2004
[5] See Carillion’s Construction Catastrophe (2018); Wirecard’s Fintech Fiasco (2020); Thames Water (2024) https://www.theguardian.com/business/2023/dec/05/ofwat-investigates-whether-thames-water-dividend-is-licensing-breach
[6] “Bank of England governor says he is unable to stop inflation hitting 10%”. “Andrew Bailey admits sounding ‘apocalyptic’ on food price increases and signals he will raise interest rates further”, The Financial Times, May 2020
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