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Hayek on the Neutrality of Money

Studies in Austrian Macroeconomics

ISBN: 978-1-78635-274-3, eISBN: 978-1-78635-273-6

Publication date: 28 April 2016


The concept of “neutral money” has a long history in monetary theory and macroeconomics. Like a number of other macro concepts, its meaning has been subject to a variety of interpretations over the decades. I explore the way in which Hayek used this term in his monetary writings in the 1930s and argue that “neutrality” for Hayek was best understood as the idea that monetary institutions were ideal if money, and changes in its supply, did not independently affect the process of price formation and thereby create false signals leading to economic discoordination, and especially of the intertemporal variety. This view was rooted in his work on money and the trade cycle in the late 1920s and early 1930s and also bound up with his understanding of “equilibrium theory.” The importance of his concept of neutrality was that it served as a benchmark for judging the comparative effectiveness of different monetary regimes and policies. That use is still relevant today.




I thank the participants at the 2014 History of Economics Society meetings, especially Bruce Caldwell and Hansjoerg Klausinger, for their comments on an earlier draft, and Alex Salter and the other participants at the 2014 Wirth Workshop for useful discussion.


Horwitz, S. (2016), "Hayek on the Neutrality of Money", Studies in Austrian Macroeconomics (Advances in Austrian Economics, Vol. 20), Emerald Group Publishing Limited, Leeds, pp. 61-78.



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