“It is one of the oldest facts known to economic theory that changes in the quantity of money, or changes in the ‘velocity of circulation’ (or the ‘demand for money’), will deflect the rate of interest from its equilibrium position and may keep it for considerable periods above or below the figure determined by the . . . → Read More: Hayek on Money Disturbing Equilibrium
Bringing banking and financial institutions back into the money / macro picture.
Here, here and here.
Hayek’s account, of course, begins with banks and financial institutions, and presumes a central role for these institutions in the yo-yoing of money, leverage, credit, and risk-taking.
“The moment there is any sign that the total income stream may actually shrink [during a post-bust deflationary crash], I should certainly not only try everything in my power to prevent it from dwindling, but I should announce beforehand that I would do so in the event the problem arose.”
– F. A. Hayek, in . . . → Read More: Hayek — against a Fed created post-bust deflation
George Selgin is one of the best of the current generation of monetary economists. Scott Sumner is perhaps the most engaging economist blogger on the internet. What happens when Sumner blogs on Selgin? Take a look. Selgin responds in the comments.
Credit and leverage are at the heart of Friedrich Hayek’s conception of the boom and bust cycle. In the current crisis leverage and credit are receiving a good bit of attention — and even a few economists are beginning to take notice of their significance. But in Hayek’s work, leverage and credit have always been the very heart of the story. . . . → Read More: Leverage – The Loose Joint Which Makes The Trade Cycle Inevitable