Hayek on Milton Friedman and Monetary Policy

Uploaded by Malthus0 on 29.08.2009

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