NetNews Usenet Archive 1992 #27/NN_1992_27.iso/spool/alt/politics/economic/9

Text File | 1992-11-20 | 2.1 KB | 44 lines

Newsgroups: alt.politics.economics
Path: sparky!uunet!shearson.com!snark!pmetzger
From: [e-mail] (Perry E. Metzger)
Subject: Re: Keyenes VS Hayek
Message-ID: <[e-mail]>
Sender: [e-mail] (News)
Organization: /usr/local/lib/news/organization
References: <[e-mail]> <[e-mail]> <[e-mail]>
Date: Fri, 20 Nov 1992 20:20:25 GMT
Lines: 32

[e-mail] writes:
>In article <[e-mail]> [e-mail] (Tim Starr) writes:
>   In article <[e-mail]> [e-mail] (Matt Landrum) writes:
>   }
>   }What is Hayek's solution to unemployment?
>
>   A market free enough to exclude even such well-entrenched interventions as
>   central banking so that stable currency could prevent business cycles.
>
>Aha! That's what I subscribed to this group for! Can you sketch the
>proof for the (intuitively appealing) proposition that "stable
>currency could prevent business cycles"?

Well, I don't have a Hayekian proof, but I can sketch a part of the
argument from George Selgin's book on free banking. Selgin is an
Austrian schooler, so it should be close enough. Basically, the
problem is that a central bank has no way to track the supply and
demand for currency in a market driven way. In a pure free banking
system, the excess clearing rule (did I have the name of that one
right) more or less dictates that banks end up following a strict
market discipline in setting their reserve capital percentages, which
means that the money supply and interest rates will rise and fall in
close couplings with the demand for currency. Inflation, caused by
excess currency, would end, and deflation, caused by insufficient
currency, would end. Money would tend to stabilize. Selgin's "The
Theory of Free Banking" is an easy read -- I recommend it.

--
Perry Metzger        [e-mail]
--
"They can have my RSA key when they pry it from my cold dead fingers."
Libertarian Party info: Phone [phone], E-Mail [e-mail]