The sincere mistakes emerge over disagreements of monetary theory, but the problem isn't lack of, or consensus about, monetary theory and policy. The problem is the institutional arrangement in the EZ and the US is a bad system which magnifies the consequences of mistakes and bad decisions whatever their source. Such institutional arrangements must be rethought. I, for one, think our current political discourse -- even by those generally in the free market camp -- reveals that economists have forgotten these words of wisdom and robust political economy analysis that two of the greatest economists of the second half of the 20th century -- Hayek and Friedman -- had to offer in these classic texts of theirs on the issuses of monetary and fiscal policy that are so relevant for our times.
You can follow this conversation by subscribing to the comment feed for this post. Those essential economic writings are collected in the volume "Prices and Production and Other works", published by the LvMI. Had you said that Hayek was one of the greatest social or political philosophers of the second half of the 20th century that would have been much more correct.
The only Hayek's strictly economic work published after I am aware of is "Denationalization of Money". But that slim volume on banking and monetary policy could have hardly earned him the honor of being one of the greatest economists of any period. Of course, I can guess that the reason for your awkward dating of Hayek's economic work is that you actually do not like so much his books and articles written before , the works his fellow-giant Friedman called "very bad" and inflicting a great deal of damage by advocating "liquidationism".
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It is very awkward that you failed to note in your post this rather simple point. Friedman and Hayek had diametrically opposed views on the role of monetary policy and that Hayek almost certainly would have severely criticized QE3, whereas Friedman, Bernanke's idol, would have supported it as consistent with nominal GDP targeting. Your two temporally disjointed giants are actually worlds apart in monetary theory and policy.
Who would have guessed that by reading your post? Posted by: Nikolaj September 15, at PM. And that was the point of the essay. Despite their differing views on money, they both agreed that central banking was a flawed institution that allowed a few bad, stupid, or ignorant yet well-intentioned people to do great harm.
Do you disagree? Your other point about Hayek's post contributions to economics is nonsense. Hayek enjoyed an enormous resurgence after his Nobel Prize, and was influential as was Friedman in the signficant change in policy direction in Britain and the U. Several other late 20th century Nobel winners in Public Choice and New Institutional economics drew heavily from the Hayek research program. Yes, he was a giant economist in the second half of the 20th Century.
Another disturbing trend in Europe has been just how political the central bank has become and how political rather than economic hopes are pinned onto it. The ECB's actions are neither to ensure full employment nor to ensure price stability, but to ensure the continuance of a political ideal. This type of statecraft will impoverish the Euro zone because now the ECB is pursuing a policy without regard for the prosperity of countries along the Euro's periphery.
It sets a course of events that Hayek and Friedman would have feared by politicizing the money supply. Sralla, please give me a technical economic book or article that Hayek had written after apart from "Denationalization of Money", which I mentioned. It is not enough to say that people liked Hayek after or in order to classify him as an economist of the second half of the 20th century. That would mean that his contributions came largely in the second half of the century. Au contraire, he abandoned economics entirely after "The Pure Theory of capital" and never really contributed anything worth mentioning after that.
He received the Nobel Prize in for the work he had done in the s, for his "pioneering contribution to the theory of economic fluctuations" as Nobel Committee said for evil liquidationist ABCT , not for his post-World War II quasi-philosophical musing about "knowledge", "spontaneous order", "constitutions of liberty" and all the rest. Apart from that, why then Friedman supported the Fed, and spent his entire life arguing about the "proper monetary policy" if the Fed was so awful and beyond redemption?
As you probably know, Friedman criticized Fed not for existing, but for not being inflationary enough during the Great Depression, for failing to "stabilize" the declining money supply. His major fear was that the Fed bureaucrats would fail to inflate enough in the critical situations. He argued that the Japanese central bank was not printing enough during the s and that this was the major reason for the "lost decade" Hence, he praised Alan Greenspan as a great genius and maestro who "got it right" during the s namely, during the house bubble.
You need to get command of the facts before posting comments like these. You asked for one example of an economics work by Hayek after , so here is one. You are equally wrong about Friedman. He never supported discretionary monetary policy.
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Allan Meltzer went through all of Milton's Newsweek columns and he never deviated from his commitment to following a monetary rule. It is that commitment to a rule that links his position on moeny with Hayek's. Given the lack of Congressional outrage over QE3, I can only conclude that the Democratic party has learned to love "trickle-down economics. Too bad Milton Friedman did not use Hayek's argument on the dispersal of knowledge in this passage in Capitalism and Freedom and used it a year later in a different context without mentioning Hayek.
Posted by: Neel September 16, at AM. I'm quite certain that Friedman never supported nominal GDP targeting, despite having at various times endorsed quite a few different types of monetary rules. I say this because I once did a paper on the history of the productivity norm, and in researching it searched systematically for various past proposals for what's now called nominal income targeting. I doubt I'd have overlooked one by MF in the course of that research.
Of course the key to your question, Peter, is what happens in the counterfactual. It's not enough to simply say that a central bank has these problems. Clearly it does. I am open to abolishing central banks in theory for all the reasons you state, I just have reservations about the case that it would actually work. This line of argument here is the same that those opposed to the free market use.
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They provide a laundry list of the problems with the market and then conclude we ought to abandon it. It doesn't quite do it for me either as an anti-market argument or as an anti-government institution argument. We really don't know how the alternative will work. The status quo seems to be working OK. The two premier liberal market economies on the planet seem to have done fine with central banks.
I worry about the robustness of the solution. Will it unravel into something worse? These are honestly open questions and concerns for me - I am open to the idea of abolishing central banks, just not ready to embrace it. I meant UK and US - the two premier liberal market economies in their own golden ages, of course. Some of us would detect a bit of presumably unintended irony in your reference to "golden ages," of course, but why do things go sour?
Perhaps at least in part due to political monetary manipulation and debasement? Do you really think the US has done perfectly well with a central bank, given the onset of the Great Depression less than two decades after the Fed was established, and now the positively insane descent into crude inflationism?
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It is precisely what we have now that appears to be unraveling into something far worse. The question is: do you really defend the thesis that whatever Hayek wrote on economics after actually after , since I still was unable to locate anything in the period was more important that what he wrote before? That this article is more important than "Prices and Production"? As for Friedman, it is rather awkward to say that Friedman's commitment to the monetary rule read, a constant annual increase in the money supply should "link" his position to Hayek's.
It seems to me that this is the strongest possible difference between them: Friedman believed, as his mentor Irving Fischer did, that the only distortionary effect can come from CPI inflation, and that is the entire rationale for the monetary rule to stabilize the "nominal income". This is exactly the opposite of what Hayek believed - the general price level is irrelevant, the relative price effect are the only thing that counts. Is Deflation Really Bad for the Economy?
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