Comments on: What Would Hayek Say?

By: Features of the week | Financems - Recently Updated Finance Blog

Features of the week | Financems - Recently Updated Finance Blog — Tue, 08 Mar 2011 08:03:22 +0000

[...] bailout? 6. For Greenwich, ‘This is our Katrina’. Oh please. – Ed. 7. What would Hayek say about recent interventions in the economy? 8. John Paulson is listed as the biggest short seller [...]

By: Kaz

Kaz — Thu, 09 Sep 2010 16:05:42 +0000

Hayek did NOT argue for a gold standard, but AGAINST them.

He was showing how the government imposing gold as a system of barter inevitably destroyed any economy. The fact that those who stuck to their fiat gold standards longer failed harder is entirely consistent with Austrian views.

Forcing people to use gold is socialism, same as anything else, and just as bad as the rest.

By: Lawrence H. White

Lawrence H. White — Fri, 26 Sep 2008 16:31:23 +0000

In reply to Bogdan Enache: As a thought experiment, I was imagining a central bank “offsetting the fall in M/B by expanding B” in a way that is “correctly calibrated and timed”. I argued that such an action “does not push interest rates down below equilibrium” because it does not create an excess supply of money. The imagined action targets M or MV, not the interest rate. The market determines the interest rate. I am not assuming that a central bank can target the correct interest rate.

By: Less Antman

Less Antman — Fri, 26 Sep 2008 12:26:46 +0000

As I understand it, the deflation of the money supply was the result of the widespread bank failures, and these were largely the result of the laws against branch banking that caused so many banks to be “measly one-horse institutions” (h/t It’s A Wonderful Life) which had horribly undiversified portfolios of loans. Am I correct that Canada had no bank failures during this time, and had no restrictions on branch banking?

Did Hayek (or other free market economists) address the branch banking prohibitions during the contraction?

By: Bogdan Enache

Bogdan Enache — Thu, 25 Sep 2008 21:47:13 +0000

Dear professor White,

What are the reasons to believe in the assumption that the interest rate during the contraction phase is “correctly calibrated and timed”? Being the result of a previously expansionist phase, it doesn’t seem clear what the right level of interest should be.

By: Hayek sobre a crise financeira « O Insurgente

Hayek sobre a crise financeira « O Insurgente — Thu, 25 Sep 2008 09:23:57 +0000

[...] sobre a crise financeira Arquivado como: Economia, Teoria — Miguel @ 10:23 am “What Would Hayek Say?”, uma discussão iniciada por Peter Klein com contribuições de Richard Ebeling e Lawrence [...]

By: Financial Crisis/Bailout Linkfest « The Everyday Economist

Financial Crisis/Bailout Linkfest « The Everyday Economist — Thu, 25 Sep 2008 03:11:09 +0000

[...] What Would Hayek Say?, Peter Klein [...]

By: Peter Klein

Peter Klein — Wed, 24 Sep 2008 21:18:45 +0000

Right, sorry, I was typing faster than I was thinking. I meant to write that in general, we should worry not only about the allocation of investment between long-term and short-term projects (the length of the Hayekian triangle), but also that between firms and industries competing for investment goods at the same place in the time-structure of production. In other words, even if an increase in the monetary base doesn’t distort the intertemporal structure of production, it still interferes with the allocation of resources across firms and industries. I take it you’re saying the effects of introducing such noise are second-order relative to the effects of a B that’s too low for a given demand for money.

By: Lawrence H. White

Lawrence H. White — Wed, 24 Sep 2008 19:55:55 +0000

Peter, option (b) presumably would unavoidably involve some kind of non-systematic injection effects or Cantillon effects, some kind of “noise”. The banks that first get excess reserves presumably lend to a set of firms than that is not perfectly representative of the economy as a whole. But since the expansion of B doesn’t distort the interest rate (under the assumption that that it is correctly calibrated and timed), there’s no reason to think that it would systematically distort the allocation of investment between long-term and short-term projects, or between higher and lower stages of production (as your “not only” suggests).

Decentralizing the monetary system would help avoid such noise effects, as well as the systematic distortions associated with disequilibrating monetary policy.

By: Peter Klein

Peter Klein — Wed, 24 Sep 2008 18:23:53 +0000

Larry, a quick clarification: Wouldn’t option (b) involve injection effects or Cantillon effects that could be masked by looking at aggregate data? In other words, wouldn’t the increase in the monetary base affect not only the allocation of investment between long-term and short-term projects (the length of the Hayekian triangle), but also between firms and industries competing for investment goods at the same place in the time-structure of production? Wouldn’t the expansion of B also involve a distortion or disequilibrium in the relative prices of capital goods of the same “order” (in Menger’s terms) and the relative incomes of firms that are closer or farther away from the credit markets in which the central bank intervenes? Thanks.