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Hayek's Monetary Theory and Policy: A Critical Reconstruction


  • White, Lawrence H


Friedrich A. Hayek's critique of price level stabilization was based on the theoretical claim that only a constant money stock (M), or constant volume of nominal spending (MV), allows intertemporal price equilibrium. The claim is not generally correct. Hayek's case (in principle) for constant MV, and his critique of the automatic gold standard for not delivering it, are thus uncompelling. The injection effects of his business cycle theory provided a sounder basis for his prescription. In the 1970s, Hayek switched to endorsing price-level stabilization. In doing so he was logically compelled to repudiate his business cycle theory.

Suggested Citation

  • White, Lawrence H, 1999. "Hayek's Monetary Theory and Policy: A Critical Reconstruction," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(1), pages 109-120, February.
  • Handle: RePEc:mcb:jmoncb:v:31:y:1999:i:1:p:109-20

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    Blog mentions

    As found by, the blog aggregator for Economics research:
    1. De Pablo, cuasimonedas y Hayek: una aclaracion
      by Nicolas Cachanosky in Punto de Vista Economico on 2012-05-21 08:10:24


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    Cited by:

    1. Lawrence H. White, 2015. "Skepticism About Minsky's Financial Instability Hypothesis: A Comment on Flanders," Econ Journal Watch, Econ Journal Watch, vol. 12(1), pages 106-113, January.
    2. Bruce Caldwell, 2011. "Ten (Mostly) Austrian Insights for These Trying Times," CAE Working Papers 90, Aix-Marseille Université, CERGAM.
    3. Nikolay Nenovsky, 2004. "Elements of Hayeks Monetary Theory," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 84-88.
    4. Tomáš Munzi & Petr Hlaváč, 2011. "Vliv cílování inflace na povahu peněžní nabídky a finanční nerovnováhy
      [Inflation Targeting and Its Impact on the Nature of the Money Supply and the Financial Imbalances]
      ," Politická ekonomie, University of Economics, Prague, vol. 2011(4), pages 435-453.
    5. AgnËs FestrÈ, 2002. "Money, Banking and Dynamics: Two Wicksellian Routes from Mises to Hayek and Schumpeter," American Journal of Economics and Sociology, Wiley Blackwell, vol. 61(2), pages 439-480, April.
    6. Lawrence H. White, 2011. "A Gold Standard with Free Banking Would Have Restrained the Boom and Bust," Cato Journal, Cato Journal, Cato Institute, vol. 31(3), pages 497-504, Fall.
    7. Sahoo, Ganeswar, 2012. "F.A. Hayek and his rational choice of monetary arrangements," MPRA Paper 39920, University Library of Munich, Germany.
    8. Anthony Carilli & Gregory Dempster, 2008. "Is the Austrian business cycle theory still relevant?," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 21(4), pages 271-281, December.
    9. van den Hauwe, Ludwig, 2000. "The Drama Revisited," MPRA Paper 8688, University Library of Munich, Germany.
    10. Martin Komrska & Marek Hudík, 2014. "Were Hayek?s Monetary Policy Recommendations Inconsistent?," Proceedings of Economics and Finance Conferences 0402133, International Institute of Social and Economic Sciences.
    11. Douglas A. Irwin, 2011. "Anticipating the Great Depression? Gustav Cassel's Analysis of the Interwar Gold Standard," NBER Working Papers 17597, National Bureau of Economic Research, Inc.
    12. repec:spr:jecfin:v:41:y:2017:i:2:d:10.1007_s12197-016-9357-7 is not listed on IDEAS
    13. Martin Komrska & Marek Hudík, 2016. "Hayek’s monetary theory and policy: A note on alleged inconsistency," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 29(1), pages 85-92, March.
    14. repec:prg:jnlpep:v:preprint:id:668:p:1-30 is not listed on IDEAS

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