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Hayek and Mises on Neutrality of Money: Implications for Monetary Policy

  • Arkadiusz Sieroń
Chapter

Abstract

The aim of this article is to examine the concept of neutral money in light of the Austrian school, particularly Hayek’s and Mises’s writings. Although mainstream economics analyzes the non-neutrality of money, it focuses on price rigidity or incomplete information as its causes. In contrast, Austrian economists examine primarily the first-round effect. Their analyses of the impact of unevenly distributed money on the structure of relative prices and production, in the spirit of Cantillon’s analysis, show that changes in the money supply are never neutral, even in the long term. Therefore, by not taking into account the Cantillon effect—which is a key component of the Austrian theory of money and the business cycle—central banks lead overly loose monetary policies. Thus, the article contributes to the debate on benefits and costs of expansionary monetary policy, including that conducted by the European Central Bank.

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Authors and Affiliations

  • Arkadiusz Sieroń
    • 1
  1. 1.Institute of Economic SciencesUniversity of WroclawWrocławPoland

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