[This is the 2013 F. A. Hayek Memorial Lecture presented at the Austrian Economics Research Conference, March 22, 2013.] This article has a twofold purpose. Its first goal is to pay tribute to Friedrich von Hayek as an outstanding monetary theorist. Its second objective is to further elaborate, on the ground of Hayek’s main findings, the deficiencies of the contemporary monetary order, namely by presenting the phenomenon of monetary imperialism. Against this background, the article also contains a re-interpretation of present-day monetary institutions and a critique of internationally sponsored economic stabilization policies.
The first section offers a presentation of Hayek’s early monetary thought, especially in the policy area of monetary nationalism. This presentation, even though a due tribute to Hayek, is delivered in full awareness of the fact that Hayek is not the Austrian economist par excellence. Indeed, a number of scholarly articles have demonstrated that, with respect to a few critical issues, Hayek’s economic and social thought is not fully reconcilable, not to say contradictory, with the praxeological method1 or libertarian ethics.2 The second section expands Hayek’s approach to monetary phenomena in order to show how monetary nationalism leads to monetary imperialism. In that respect, a special emphasis is put on the political nature of multiple paper monies and on the fractional reserve banking principle. Finally, within this analytical context, the third section appraises the recent increase in cooperation between governments, as observed since the policy response to the banking and public finance crises in Europe.
THE IMPERFECTIONS OF THE CONTEMPORARY MONETARY SYSTEM
In a series of five lectures delivered in 1937, and published under the title Monetary Nationalism and International Stability, Hayek offers an in-depth analysis of the main deficiencies of the present-day monetary system. In a nutshell, he identifies two factors that disrupt international economic relations: the fractional reserve commercial banks and the national central banks. The former are the primary source for the international transmission of the business cycles, while the attempts of the latter to correct the imbalances de facto amplify the resulting instability.
This post was published at Ludwig von Mises Institute on Oct 31, 2017.