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

  • Arkadiusz Sieroń


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.


  1. Adam, K., & Tzamourani, P. (2015). Distributional consequences of asset price inflation in the euro area (pp. 1–17) (Deutsche Bank Discussion Paper 27).Google Scholar
  2. Ahrend, R., Cournede, B., & Price, R. (2008). Monetary policy, market excesses and financial turmoil (OECD Economics Department Working Paper 597).Google Scholar
  3. Benedyk, M. (2013). Polityka pieniężna Europejskiego Banku Centralnego 1999–2013. Ekonomia–Wrocław Economic Review, 19(4).Google Scholar
  4. Blaug, M. (1985). Economic theory in retrospect (4th ed.). Cambridge: Cambridge University Press.Google Scholar
  5. Bordo, M. D., & Wheelock, D. C. (2004). Monetary policy and asset prices: A look back at past US stock market booms (NBER working paper 10704).Google Scholar
  6. Borio, C. (2015). Revisiting three intellectual pillars of monetary policy received wisdom. Luncheon address. Washington, DC: Cato Institute.Google Scholar
  7. Borio, C., & Lowe, P. (2002). Asset prices, financial and monetary stability: Exploring the nexus (pp. 1–35) (BIS Working Papers 114).Google Scholar
  8. Cantillon, R. (1959 [1755]). Essay on the nature of trade in general. London: Frank Cass.Google Scholar
  9. Chaloupek, G. (2010). “Neutrality of money” versus “stability of the price level”—Issues of monetary theory within the Austrian School of economics. 14th ESHET Conference, Amsterdam, March 25–27, 2010.Google Scholar
  10. Claeys, G., Darvas, Z., & Leandro, Á., & Walsh, T. (2015, June 9). The effects of ultra-loose monetary policies on inequality. Bruegel, Policy Contribution.Google Scholar
  11. Cottrel, A. (1994). Post Keynesian monetary economics: A critical survey. Cambridge Journal of Economics, 18(6), 587–605.CrossRefGoogle Scholar
  12. ECB. (n.d.). Objective of monetary policy.
  13. Fischer, S. (1977). Long term contracts, rational expectations, and the optimal money supply rule. Journal of Political Economy, 85(1), 191–205.CrossRefGoogle Scholar
  14. Friedman, M. (1969). The optimum quantity of money. In M. Friedman (Ed.), The optimum quantity of money and other essays. Chicago, IL: Aldine Publishing Company.Google Scholar
  15. Garrison, R. W. (2001). Time and money. The macroeconomics of capital structure. London: Routledge.Google Scholar
  16. Hayek, F. (2008a [1935]). Prices and production. In J. Salerno (Ed.), Prices and production and other works: F.A. Hayek on money, the business cycle, and the gold standard (pp. 189–329). Auburn AL: Ludwig von Mises Institute.Google Scholar
  17. Hayek, F. (2008b [1935]). Monetary nationalism and international stability. In J. Salerno (Ed.), Prices and production and other works: F.A. Hayek on money, the business cycle, and the gold standard (pp. 331–422). Auburn, AL: Ludwig von Mises Institute.Google Scholar
  18. Hoffmann, A. (2009). An overinvestment cycle in Central and Eastern Europe (MPRA paper 15668).Google Scholar
  19. Horwitz, S. (1994). Inflation. In P. Boettke (Ed.), The Elgar companion to Austrian economics. Aldershot: Edward Elgar.Google Scholar
  20. Horwitz, S. (2016). Hayek on the neutrality of money. In S. Horwitz (Ed.), Studies in Austrian macroeconomics. Advances in Austrian economics (Vol. 20, pp. 61–78). Bingley: Emerald Group Publishing.CrossRefGoogle Scholar
  21. Hott, C., & Jokipii, T. (2012). Housing bubbles and interest rates (Swiss National Bank working paper 2012–07).Google Scholar
  22. Huerta de Soto, J. (1998). The ongoing methodenstreit of the Austrian school. J des Économistes et des Études Humaines, 8(1), 75–113.Google Scholar
  23. Huerta de Soto, J. (2006). Money, bank credit, and economic cycles. Auburn, AL: Ludwig von Mises Institute.Google Scholar
  24. Hülsmann, J. G. (2013). Fiat money and the distribution of incomes and wealth. Document de travail du GRANEM2013–02–039.Google Scholar
  25. Kirzner, I. (1976). Equilibrium versus market process. In E. G. Dolan (Ed.), The foundations of modern Austrian economics. Kansas City: Sheed and Ward.Google Scholar
  26. Lucas, R. E., Jr. (1972). Expectations and the neutrality of money. J Economic Theory, 4(20), 103–124.CrossRefGoogle Scholar
  27. Mankiw, G. (1985). Small menu costs and large business cycles: A macroeconomic model of monopoly. Quarterly J Economics, 100(2).CrossRefGoogle Scholar
  28. Mersch, Y. (2014, October 17). Monetary policy and economic inequality. Speech at Corporate Credit Conference. Zurich.
  29. Mises, L. (1953 [1912]). Theory of money and credit. New Haven: Yale University Press.Google Scholar
  30. Mises, L. (1990). The non-neutrality of money. In R. Ebeling (Ed.), Money, method, and the market process: Essays by Ludwig von Mises (pp. 69–77). Norwell, MA: Kluwer Academic Publishers.Google Scholar
  31. Mises, L. (1998 [1949]). Human action: A treatise on economics (scholar’s edn.). Auburn AL: Ludwig von Mises Institute.Google Scholar
  32. Morgenstern, O. (1972). Thirteen critical points in contemporary economic theory: An interpretation. J Economic Literature, 10(4), 1163–1189.Google Scholar
  33. O’Driscoll, G., Jr., & Rizzo, M. (1996). The economics of time and ignorance. London: Routledge.Google Scholar
  34. Plosser, C. I. (1990). Money and business cycles: A real business cycle interpretation (NBER working paper series 3221).Google Scholar
  35. Salerno, J. T. (1994). Ludwig von Mises’ monetary theory in light of modern monetary thought. Review of Austrian Economics, 8(1), 71–115.CrossRefGoogle Scholar
  36. Salerno, J. T. (2016). The development of the neutral money concept: The Austrian school further dehomogenized.
  37. Sieroń, A. (2014). Nieutralność pieniądza. Studia Ekonomiczne, LXXX(1), 88–107.Google Scholar
  38. Sieroń, A. (2017). Inflation and income inequality. Prague Economic Papers.CrossRefGoogle Scholar
  39. Sinn, H.-W. (2011). Germany’s capital exports under the euro, August 2, 2011.
  40. Treaty on the functioning of the European Union. (2012). C326/102.
  41. Visser, H. (2002). Neutrality of money. In B. Snowdon & H. R. Vane (Eds.), An encyclopedia of macroeconomics. Cheltenham: Edward Elgar Publishing.Google Scholar
  42. Wicksell, K. (1978). Lectures on political economy (Vol. 2). Fairfield, NJ: Augustus M Kelley Publishers.Google Scholar
  43. Zijp, R., & Visser, H. (1994). Mathematical formalization and the domain of economics: The case of Hayek and new classical economics. In R. Zijp & J. Birner (Eds.), Hayek, co-ordination and evolution. London: Routledge.CrossRefGoogle Scholar

Copyright information

© Springer International Publishing AG, part of Springer Nature 2018

Authors and Affiliations

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

Personalised recommendations