Hayek's Monetary Theory and Policy: A Note on Alleged Inconsistency
14 Pages Posted: 16 Sep 2012 Last revised: 16 Jan 2017
Date Written: September 15, 2012
Challenging the dominant view, we claim that Hayek’s monetary views did not significantly change over his lifetime. The prevalent perception of early Hayek as a money stream stabilizer and late Hayek as a price level stabilizer is attributable to an unjustified normative interpretation of Hayek’s positive analysis. We argue that in his contributions to monetary theory, Hayek took the goals of monetary policy as exogenously given and analysed the efficiency of different means of achieving them. Hayek’s allegedly inconsistent transformation from a critic to an advocate of price level stabilization is explained by a change of issues under his focus, rather than by a change in his positive views. We also claim that Hayek was always aware that every practical monetary policy involves difficult trade-offs and that he was therefore reluctant to impose his own value judgments on what people should strive for.
Keywords: F. A. Hayek, positive economics, normative economics, monetary policy, Austrian business cycle theory, price level stabilization, money stream stabilization
JEL Classification: B22, B25, B31, B53, E32, E52
Suggested Citation: Suggested Citation