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Neutral Money and Monetary Policy

In: The Economics of Friedrich Hayek

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  • G. R. Steele

Abstract

A reliable monetary system is indispensable to an extended division of labour, which is the basis for economic advance. In facilitating exchange, money releases man from a close dependence upon nature and upon the narrow confines of local markets; but it forces an individual to rely upon the entrepreneurial success of other individuals: upon ‘human effort that we cannot know about or control’ (Hayek, 1988, p. 90). This is indeed ‘unnerving’. Price signals are the means of communication for billions of interactive participants within an extended economic order, whereby the delicate balance between over- and under-production is maintained by continuous readjustments. It is vital that those signals should not be corrupted by extraneous influences or swamped by the inflationary impact of monetary expansion. It might appear curious, therefore, that Hayek should remain true to his early conviction of the wrongness of the (widely held) view that price stability should be the objective of monetary policy.

Suggested Citation

  • G. R. Steele, 2007. "Neutral Money and Monetary Policy," Palgrave Macmillan Books, in: The Economics of Friedrich Hayek, edition 0, chapter 7, pages 125-133, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-80148-6_7
    DOI: 10.1057/9780230801486_7
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