Evolving Views on Monetary Policy in the Thought of Hayek, Friedman, and Buchanan
31 Pages Posted: 6 Dec 2010 Last revised: 26 Jan 2017
Date Written: July 2, 2015
Attempting to find the technically optimal monetary policy is futile if the Federal Reserve’s independence is undermined by political influences. F. A. Hayek, Milton Friedman, and James Buchanan each sought ways to improve the performance of the Federal Reserve. They each ended up rejecting the possibility that technical refinement or minor reforms might be sufficient. After properly accounting for the concerns of robust political economy, each concluded that a fundamental restructuring of our monetary system was necessary. Friedman turned to binding rules, Buchanan to constitutionalism, and Hayek to competing private currencies. We synthesize their contributions to make a case for applying the concepts of robust political economy to the Federal Reserve through the adoption of professional humility, creative thinking, and an emphasis on the politically possible, not the politically acceptable.
Keywords: Federal Reserve, monetary policy, robust political economy, Austrian economics, public choice, central bank independence
JEL Classification: B53, E58, P16, D73
Suggested Citation: Suggested Citation