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Source link: http://archive.mises.org/10969/the-notion-of-neutral-money/

The Notion of Neutral Money

November 4, 2009 by

The notion of a neutral money is no less contradictory than that of a money of stable purchasing power. Money without a driving force of its own would not, as people assume, be a perfect money; it would not be money at all. FULL ARTICLE by Ludwig von Mises

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Current November 4, 2009 at 9:24 am

The idea of “Neutral Money” was invented by Hayek. He didn’t intend it to mean what the Keynesians used the word for.

To him it was “the quantity of money that will not affect the structure of production by lengthening or shortening it”. However, even this idea is difficult to fully defend.

Stephen Grossman November 4, 2009 at 3:06 pm

Perhaps “stable money” is the inflationists’ hedge against inflation. After all, the US Rare Coin and Bullion Reserve sells $5 gold coins for $124, saying that “experts are predicting gold to reach $3000/oz.” As one liberal claims, “A foolish consistency is the hobgoblin of little minds.”

Bruce Koerber November 4, 2009 at 5:01 pm

Wednesday, November 4, 2009

When Will The Central Banks Rush To Buy Gold?

When I saw that India bought 200 tons of gold I wondered what effect that would have on:
a). the price of gold,
b). the rush by other central banks to buy gold, and
c). the psyche of most people – because the return to the gold standard would become a common conversation piece, naturally negating the propaganda by the ego-driven interventionists.

Since gold, as the medium of exchange, is the sign and symbol of a classical liberalism civilization perhaps gold will actually be the trigger!

Perhaps gold will capture everyone’s interest and serve as the catalyst, setting in motion the process of exterminating the counterfeit fiat monetary systems around the world.

anon November 4, 2009 at 6:53 pm

re: Current

This seems to put Hayek at odds with Mises. Which are the best of Hayek’s essays on his view on “neutral money”, and more generally, monetary policy?

I’ve always thought that a good monetary mechanism is one which balances demand and supply – the gold standard is not perfect in that regard, but it’s worked pretty well.

Current November 6, 2009 at 2:30 pm

It doesn’t really put Hayek and Mises at odds.

In 1949 Mises is criticising the prevailing Keynesian definition of money neutrality. Which isn’t what Hayek meant by it.

Hayek defined a neutral amount of money, but never said that “money was neutral” in general in any real economy. He apologised for the confusion that all this caused in “The Pure Theory of Capital”, which I think contains his best discussion of the subject.

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