In this seminar, Lawrence White gives an insight in the Austrian Monetary Theory, which includes the ideas of the two most representative of the Austrian School of Economics, Mises and Hayek. It explains how economy works with government intervention and why having no government intervention is the way to go.
In this second video, White goes through the NGDP Targeting, which is a monetary policy target whereby, given a central bank, it is not ought to to stabilize the price level, but the total amount of spending, which Hayek called the money stream.
The problem of money disequilibrium, understood as, an excess demand of money or an excess supply of money is that it disturbs the interest rate. Thereby, it disturbs intertemporal allocation, causing not just a cyclical risk but also malinvestments.
What we want is neutral money, not a money that stabilizes the price levels.”
A particular version of NGDP target given by Hayek determines that central bank, if given one, should keep the target constant. But, how to keep NGDP on a control path? By controlling the quantity of money available in the market, but such implies forecasting and contracting money when velocity is falling.
White states that the inflation rate should be less than zero in a growing economy. Falling prices are associate with growing real output. That’s a good deflation. Aiming at a inflation rate doubles the damage in the economy.
There’s no reason to think that the central banks knows more than the market does and that they are any better at forecasting that the market is.”
Central banks aren’t good at forecasting. They need to be able to forecast a change in velocity and price, at the right time, and in the right measure if they are committed to keep a constant NGDP. But is a lot of guesswork.
White proposes a free banking, an economy based on a commodity standard, as the Gold Standard to keep a self-regulating money stream.
Economist and professor
Nuestra misión es la enseñanza y difusión de los principios éticos, jurídicos y económicos de una sociedad de personas libres y responsables.
Universidad Francisco Marroquín