Topic Paper on Friedrich a Hayek

Topics: Economics, Monetary economics, Macroeconomics Pages: 5 (1539 words) Published: June 24, 2013
Friedrich A Hayek’s Economic Theories
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Friedrich A Hayek was a well renowned figure within the economics field in the course of 20th C. In the course of the final years of 1930s along with the early 1940s, it is evident that Hayek undertook elaborative research which mainly focused on the market processes’ discovery, as well as, knowledge. Hayek’s contributions within the economic field were basically the outgrowth of his committed participation in the probability of economic calculation within socialism debate. Hayek’s economic theories made him to be considered as the libertarian movement’s ‘elder-statesman’. Nevertheless, it is still debatable on whether the Hayek’s economic theories are of any essence within the economics field.

One of the most predominant economic theories brought up by Hayek was the monetary theory. Hayek intertwined the monetary theory with the trade-cycle theory. Basically, the two aforementioned theories considerably dealt with money in relation to its impacts on prices. In brief terms, the monetary theory proposed by Hayek comprised of the integration of the money idea as the exchange medium with the assumption that the communication network was the price system. Hayek’s trade-cycle theory comprises of the integration of both the capital theory along with the monetary theory (Caldwell, 2004). The most emphasized factor within the trade-cycle theory is the inter-temporal prices system which is the distinct price system aspect. Within both the trade along with the monetary theories, Hayek’s argument was against the dominant idea that the right monetary theory focus is on money quantity and the general prices level relationship (Hayek et al, 1989). The facts expounded within the money quantity theory could not face opposition, although progress within monetary economics had to be made through shifting from the straightforward proportionalities brought up by the considerably stable circulation velocity. In regard to Hayek’s ideas; the ideal monetary theory task needs the complete factoring in of the price determination pure theory. This is usually based on the supposition of barter along with the establishment of what alters within the conclusions made vital by the springing up of the indirect exchange. Hayek brought up the ‘neutral money’ concept in part in order to act as the contrast to his personal money views with other extra aggressive views. Through definition, a monetary system is characterized by neutral money, within which money, as it facilitates the economic activities coordination, cannot at anytime become the dis-coordination source (Hayek, 1990). In regard to some aggregative views, money remains neutral given that the money value (as established by the prices general level) stands unchanged. Therefore, it is outright that the escalation in economic activities calls for proportionally equal increase within the circulating money quantity. In respect to Hayek’s argument, monetary neutrality is only realized in the situation whereby the ‘injection effects’ are absent. In the event that the money quantity experiences an increase, the injection of the new money is carried out in a certain way, through which the relative prices are temporarily distorted. As a result, the price system ends up passing false information concerning consumer preferences, as well as, resource availabilities. Hayek’s sediments regarding the trade cycle theory comprise of the development of his thought that monetary injections have the potential of having a systematic impact on the prices’ inter-temporal pattern. The initial formulation of the trade cycle Austrian theory which was done by Mises indicated that money-induced activities within the interest rates possess noticeable impact on every capital structure. Hayek’s principal contributions to that theory, along with the successive developments of the theory, were founded on tremendously...

References: Caldwell, B. (2004). Hayek 's challenge: An intellectual biography of F.A. Hayek. Chicago: University of Chicago Press.
Hayek, F.A . (1990). Denationalisation of Money. Chicago: University of Chicago Press.
Hayek, F. A. (1941). The pure theory of capital. London: Macmillan and Co.
Hayek, F. A. (2003). Individualism and economic order. Chicago: University of Chicago Press.
Hayek, F. A., Klein, P. G., Bartley, W. W., Kresge, S., Wenar, L., Caldwell, B., & White, L. H. (1989). The collected works of F.A. Hayek. Chicago: University of Chicago Press.
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