Monday, February 9, 2015

Salerno on Hayek vs. Friedman on Monetary Policy

Joseph Salerno, academic vice president of the Mises Institute, professor of economics at Pace University, and editor of the Quarterly Journal of Austrian Economics, writes at the Mises blog:
Over the weekend Target Liberty posted a very compelling interview with Friedrich Hayek that I had never seen before.  The 30-minute interview took place at the University of Freiburg on May 31, 1980. The interviewer was Bernard Levin (1928-2004) an English journalist and author who was known in Great Britain as "the most famous journalist of his day."  Levin is very conversant with and sympathetic to Hayek's ideas and manages to draw out the best of Hayek, although a Misesian social rationalist one may have severe disagreements with the views Hayek expresses on the moral and legal foundations of a free society.  .  
Hayek at his best is on display in his uncompromising response to Levin's question about what policy Great Britain should pursue to extricate itself from the stagflationary crisis it was mired in.  Contrary to Milton Friedman who at the time counseled the Fed to implement a slow and steady reduction in money creation spread over three or four years, Hayek urged that a full dose of the disinflationary medicine be ingested all at once.  Hayek recognized that "both to stop inflation and restore a functioning market" by revoking trade union privileges would "cause a great deal of disorganization [and] an increase of unemployment which will be temporary."  Yet, Hayek continued:
We have to face ourselves to very severe hardships if we are to return to that self-directing automatic [market] system. . . . Now my point about the whole thing, particularly inflation, is that you cannot drag out  the process slowly.  No government can stand a policy which would cause misery for three or four years.  You must get it over with in relatively few months.  And the idea that you can do it slowly and still succeed is a complete illusion. 
The interview is here.

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