I think I may have blogged about this before, but hey, if I can’t quite remember, maybe you guys can’t either. (Plus, there could be new readers.)
Sometimes I see people claiming that Hayek supported NGDP targeting, or perhaps that Hayek’s preferred monetary regime would mimic NGDP targeting. I am by no means a Hayek scholar, but when I dug up his Nobel acceptance speech (for other reasons) I was struck by this passage:
The theory which has been guiding monetary and financial policy during the last thirty years, and which I contend is largely the product of such a mistaken conception of the proper scientific procedure, consists in the assertion that there exists a simple positive correlation between total employment and the size of the aggregate demand for goods and services; it leads to the belief that we can permanently assure full employment by maintaining total money expenditure at an appropriate level. [Hayek, 1974]
That doesn’t sound like a full-throated defense of stable NGDP growth.
Now, I think the issue is that perhaps earlier in his career, Hayek had supported the maintenance of MV during a depression. I asked von Pepe, who keeps track of such things better than me, and he dug up this comment from Jerry O’Driscoll:
I wasn’t at the debate and don’t know what Larry White or anyone else said. I do know what Hayek said, however, and I know my economic history.
It is entirely anachronistic to say that Hayek or anyone else wanted to maintain nominal GDP in the Great Depression. National income accounting hadn’t been invented yet. Here is a link to the history of NIA.http://www.bea.gov/national/pdf/nipaguid.pdf
[What] Hayek wrote in P&P [Prices and Production] is that neutral money meant keeping MV constant. He later clarified that he never intended this to be a guide to policy for any number of reasons. Velocity was not observed in real time and he thought the demand for money changed cyclically and unpredictably. And then there is the knowledge problem I referenced.
(His statement of the knowledge problem predates P&P. So we have additionally textual evidence that the concept of money neutrality wasn’t intended be a guide to activist policy.)
To say something would be desirable in [principle], but is impossible to execute in practice is not a fault. It is intellectual honesty. I don’t think he ever used these words, but Hayek thought that fractional reserve banking with central banks was inherently unstable.
On this, he was in the Henry Simons/Milton Friedman camp. He expressed support for both 100% reserve banking and free banking, but did not think either…was politically possible.