Evolving Views on Monetary Policy in the Thought of Hayek, Friedman, and Buchanan

31 Pages Posted: 6 Dec 2010 Last revised: 26 Jan 2017

Peter J. Boettke

George Mason University - Department of Economics

Daniel J. Smith

Troy University

Multiple version iconThere are 2 versions of this paper

Date Written: July 2, 2015

Abstract

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

Boettke, Peter J. and Smith, Daniel J., Evolving Views on Monetary Policy in the Thought of Hayek, Friedman, and Buchanan (July 2, 2015). Review of Austrian Economics, Vol. 29, No. 4, 2016. Available at SSRN: https://ssrn.com/abstract=1720682 or http://dx.doi.org/10.2139/ssrn.1720682

Peter J. Boettke (Contact Author)

George Mason University - Department of Economics ( email )

4400 University Drive
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703-993-1149 (Phone)
703-993-1133 (Fax)

Daniel J. Smith

Troy University ( email )

Bibb Graves Hall 137F
Troy, AL 36082
United States
334-808-6485 (Phone)

HOME PAGE: http://www.danieljosephsmith.com/

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