Market Standards for Money

Abstract

Attempts to delineate and to control any particular subset of the many different liquid assets available (both actually and potentially) in a modern economy are fraught with difficulties of both a theoretical and of a practical kind. Although Hayek endorses the monetarist objective that monetary policy should not become the cause of disturbances to real economic activity, he is critical of Friedman’s case that policy might be made effective through control of the annual growth of a statistical money aggregate. Hayek rejects both the concept of the money supply and the single objective of a stable price level. In the context of the discussion presented in Chapter 7, the desire is for money to be neutral in the sense that hypothetical barter transactions are unaffected by the presence of money. In theoretical terms, this is achieved by the requirement

that the quantity of money (or rather the aggregate of all the most liquid assets) be kept such that people will not reduce or increase their outlay for the purpose of adapting their balances to their altered liquidity preferences. (Hayek, 1978a, p. 77)

All history contradicts the belief that governments have given us a safer money than we would have had without their claiming an exclusive right to issue it.

(Hayek, 1978b, p. 224)