Guido Fawkes, Friedrich Hayek and Milton Friedman

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.

I well understand the ideological distinctions. I did not conflate the views of Hayek with Friedman, I just said the IEA was the spiritual home of them both – which was intended to be and no doubt you will accept as a compliment.I reported the IEA Shadow MPC’s unanimous corporate view accurately. It remains my view that Hayek would be turning in his grave to know that the IEA’s advertised monetary policy recommendation was for quantitative easing. What do you think Hayek would recommend if he were alive today?

Hi all,I never got the QE promotion on the IEA blog. But, I have seen a few articles about it that seemed to be a little receptive to the idea. But, that’s neither here nor there. As a side note: I don’t quite appreciate Hayek’s relevance. I went to the LSE, but never dug into any of his work–skimmed a few bits and pieces, but found his work un-inspiring. I’m a Smith and Ricardo kinda guy, with a bit of Keynes–Schumpeter on the back end. It may sound like heresy, when we factor in today’s pop thought. But, I’m not a really pop thought kind of fellow. Best,Yourihttp://globalviewtoday.blogspot.com

Note to Guido: Thanks for the comment. There is no question that Hayek would turn in his grave at what has happened in the US (rapid expansion of broad money which nobody has any desire to control). We can agree on that. He would be astonished that the Bank of England was blundering along without any framework of analysis for their programme of QE so that they are highly likely to make the same mistakes as the US (ie not know when to stop). We can probably agree on that too. I think he would disagree with the SMPC but not so strongly. The Austrian position is that you should RAISE rates after a boom and this is clearly not the SMPC’s position. Friedman though would likely agree with the SMPC

Second response to Guido: I should stress that the SMPC’s view is the SMPC’s view. I should also stress that it is about stopping the money supply from falling (easing is perhaps a misnomer) and we are going back to the tools of monetary control of the 1980s which is why the Bank is in a state of confusion. But, Trustees are keen to stress that the IEA has not got a corporate view. We have put several people up on national broadcast media (including myself) who have either expressed a completely different (ie orthodox Austrian) or more nuanced opinion from the SMPC.

Hayek said some pretty interesting things in his time, but for heaven’s sake let’s not get into ancestor worship. Each generation has to think through its own problems. Today’s financial markets are infinitely more complex, and economic actors so more numerous, and communications so instantaneous, than even twenty years ago, let alone the 60-70 years ago when Hayek’s thinking on the economy was at its sharpest.
I am myself more than a bit worried about quantitative easing, but I think the SMPC’s position is about right. A read of Tim Congdon’s new book and some email conversations with him have resolved some of my doubts.

Len, That’s pretty much a restatement of the historicist position in the Methodenstreit. An Austrian would say that the fundamentals don’t change. So you are pretty much rejecting Hayek’s position on the grounds that you don’t agree with Hayek’s position. It takes a little more than that. If you want to reject Hayek’s approach, you will need to demonstrate why his philosophy does not apply equally to the modern world, not simply state that the world has changed. After all, the changing world doesn’t mean that we reject the laws of physics, or that they are any less applicable.

I well understand the ideological distinctions. I did not conflate the views of Hayek with Friedman, I just said the IEA was the spiritual home of them both – which was intended to be and no doubt you will accept as a compliment.I reported the IEA Shadow MPC’s unanimous corporate view accurately. It remains my view that Hayek would be turning in his grave to know that the IEA’s advertised monetary policy recommendation was for quantitative easing. What do you think Hayek would recommend if he were alive today?

Hi all,I never got the QE promotion on the IEA blog. But, I have seen a few articles about it that seemed to be a little receptive to the idea. But, that’s neither here nor there. As a side note: I don’t quite appreciate Hayek’s relevance. I went to the LSE, but never dug into any of his work–skimmed a few bits and pieces, but found his work un-inspiring. I’m a Smith and Ricardo kinda guy, with a bit of Keynes–Schumpeter on the back end. It may sound like heresy, when we factor in today’s pop thought. But, I’m not a really pop thought kind of fellow. Best,Yourihttp://globalviewtoday.blogspot.com

Note to Guido: Thanks for the comment. There is no question that Hayek would turn in his grave at what has happened in the US (rapid expansion of broad money which nobody has any desire to control). We can agree on that. He would be astonished that the Bank of England was blundering along without any framework of analysis for their programme of QE so that they are highly likely to make the same mistakes as the US (ie not know when to stop). We can probably agree on that too. I think he would disagree with the SMPC but not so strongly. The Austrian position is that you should RAISE rates after a boom and this is clearly not the SMPC’s position. Friedman though would likely agree with the SMPC

Second response to Guido: I should stress that the SMPC’s view is the SMPC’s view. I should also stress that it is about stopping the money supply from falling (easing is perhaps a misnomer) and we are going back to the tools of monetary control of the 1980s which is why the Bank is in a state of confusion. But, Trustees are keen to stress that the IEA has not got a corporate view. We have put several people up on national broadcast media (including myself) who have either expressed a completely different (ie orthodox Austrian) or more nuanced opinion from the SMPC.

Hayek said some pretty interesting things in his time, but for heaven’s sake let’s not get into ancestor worship. Each generation has to think through its own problems. Today’s financial markets are infinitely more complex, and economic actors so more numerous, and communications so instantaneous, than even twenty years ago, let alone the 60-70 years ago when Hayek’s thinking on the economy was at its sharpest.
I am myself more than a bit worried about quantitative easing, but I think the SMPC’s position is about right. A read of Tim Congdon’s new book and some email conversations with him have resolved some of my doubts.

Len, That’s pretty much a restatement of the historicist position in the Methodenstreit. An Austrian would say that the fundamentals don’t change. So you are pretty much rejecting Hayek’s position on the grounds that you don’t agree with Hayek’s position. It takes a little more than that. If you want to reject Hayek’s approach, you will need to demonstrate why his philosophy does not apply equally to the modern world, not simply state that the world has changed. After all, the changing world doesn’t mean that we reject the laws of physics, or that they are any less applicable.

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