There is a strange post on Guido’s blog suggesting that even the IEA is advocating quantitative easing (QE). He says that he reached this conclusion after ringing round the “centre-right” think tanks. It is a pity that he did not speak to the Editorial and Programme Director because, if he had done so, he might have understood the issue better.
Firstly, the IEA has no corporate view and different IEA authors will take different views regarding such a technical issue - though it is certainly true that the SMPC generally supports some element of QE.
Secondly, because QE is essentially a technical issue and the IEA really aims to address issues of principle, we have taken the decision not just to commission and publish new work on monetary control and so on but also to reissue old works such as Larry White’s Free Banking in Britain and Hayek’s Denationalisation of Money, which are flying off the website like hot cakes.
Thirdly, though not all IEA authors believe in the denationalisation of money (Tim Congdon does not for example), many do. Meanwhile, the currency is nationalised and it looks likely that it will be for a few years yet. Decisions have to be taken now as to how monetary policy is managed within the current framework. The view of the SMPC is that the Bank of England should take QE measures to the extent necessary to stop the decline in adjusted, real broad money. Why do they believe that? Because the committee is broadly (though not totally) monetarist and they accept the lessons of Milton Friedman (whom Guido mentions) that the Great Depression was so much worse in the USA as a result of the money supply there being allowed to fall rapidly at the beginning of the 1930s. If QE goes beyond this point it will be a mistaken policy and will also be potentially very dangerous.
There is much to be admired in Guido’s website but he really should (a) take the time to see the range of what the IEA is actually doing (he only has to look at our website) (b) understand QE in the context of the SMPC’s view on the necessity for monetary control and (c) understand that Friedman’s views on such issues were completely different from those of Hayek. In 1976 both monetarist and free-banking arguments were being aired by the IEA and that is still the case in 2009.
Monetary policy has long divided people who believe in free markets as the views expressed on this blog demonstrate. Hayek and Friedman, whom Guido lumps together, never spoke to each other about the subject. If Hayek is turning in his grave, as Guido suggests, Friedman will be cheering – and vice versa.