Hayek on Milton Friedman and Monetary Policy

Yes your critisism of it and that of Milton Friedman are often combined in the public mind but I think it's fair to say that you don't entirely agree with his analysis of inflation No very far from it you see in one respect Milton Friedman is still a Keynesian not on monetary theory but on methadology Keynes very much against his own intentions decided for a mixture of what is called macroeconomics and it still dominates economic theory and Milton Friedman is one of the apostles of Macroeconomics Which has the effect that while we completely agree on general economic policy we wholely disagree on monetary policy because his theories is based on supposed regularities between statistical magnitudes he is convinced and believes he has historically demonstrated that there is a simple relationship between the total quantity of money and the price level well one of my main difficulties is that nobody knows what the total quantity of money is money has so many different meanings I have long been aware in fact it is now fifty year since I once said in effect that one of the greatest misfortunes that could happen in the field of economics was if people ever ceased to beliveve in the quantity theory of money except that they should ever come to take it literally In fact you are really arguing that Monetarism is an example of a more general error of thinking you can know to much you can know all of the facts of some economic problem oh yes you can put it this way that the aggregates... sums, averages which statistics offer you are no substitute for the detailed knowledge of every single price and their relations to each other which really guide economic activity that is a mistaken attempt to overcome our limited knowledge but there does not seem to be any great difference between you on policy Oh no well if you look at.... Forget about money for the moment we completely agree we agree in free markets we may not entirely agree which form of monetary system is most favourable to an efficent market - operation of the market. because you would prefer to have competing money so that...Oh yes, oh I am absolutly convinced that no government is capable of politically or intellectually of providing exactly the amount of money which is needed for smooth economic development and I should be all in favour in fact I am convinced that we shall never have decent money again before we take from government the monopoly of issuing money and allow competing institutions.. of course under different names not issue the same money but competing monies and let people decide which kind of money they prefer to use of course they already can do this for all sorts of purposes for example if I decided to ask my employer to pay me in deutsche marks I suppose I might be able to pursuade him, or I could agree to sell my house in terms of gold rather then in terms of pound sterling well very lately it has become legally possible in England but only quite recently and for the time being for most purposes you have practically no choice but to use the established currency I think that has to change and I doubt even whether at present governments would not effectivly supress at once any development in that direction they are very keen on preserving their monopoly because of course their ability to pursue somthing like monetary policy depends on this monopoly abolishing the government monopoly of the issue of money would deprive governments of the possibilty of pursuing monetary policy that is what I want to see but most people believe that monetary policy is an essential tool of government

Channel: Malthus0

Views: 213,081

Keywords: Milton, Friedman, John, Maynard, Keynes, F.A., FA, Friedrich, August, von, Hayek, Keynesian, Keynesianism, Macroeconomics, Quantity, theory, of, money, monetarism, free, market, banking, economic, methodology, economics

Id: fXqc-yyoVKg

Length: 4min 56sec (296 seconds)

Published: Sat Aug 29 2009