In the most corrupt of scholarly ethics, Berkeley economist Brad DeLong has continued his misinformation campaign against the economic ideas of Friedrich Hayek, blatantly misreporting the scientific record in order to smear Hayek. And let’s be blunt. There are only two possibilities here. Either DeLong is wilfully misrepresenting himself as a competent and informed historian of economic ideas or he is willfully misrepresenting the facts.
In the comments section of DeLong’s blog, Steve Horwitz replies to DeLong (with editing by DeLong):
DeLong confuses “stabilizing MV” w, ith “stabilizing P,” allowing him to use Hayek’s correct arguments against stabilizing P as if they were Hayek denying his belief that stabilizing MV is the correct policy norm. This is a very naked bait-and-switch on DeLong’s part. In fact, stabilizing MV is in contradiction with stabilizing P. If one tries to stabilize MV, one has to allow P to fluctuate inversely to changes in Q.
This was Hayek’s argument against price stabilization from as far back as at least 1928.
More important, here’s Hayek writing in *Prices and Production* (1935, p. 121):
“But I think that what I have already said on this point will be sufficient to justify the conclusion that changes in the demand for money caused by changes in the proportion between the total flow of goods to that part of it which is effected by money, or, as we may tentatively call that proportion, of the co-efficient of money transactions, should be justified by changes in the volume of money if money is to remain neutral towards the price system and the structure of production.”
That sure reads like someone who wants to offset changes in V with changes in M so as to stabilize the product MV. And notice that the goal is NOT “stabilize P” but “remain neutral towards…the structure of production.” For Hayek, that’s a reference to his 1928 work on intertemporal price coordination. Remaining neutral in Hayek’s sense allows for changes in P to emerge from changes in Q.
The next commenter adds:
DeLong is again making uninformed claims. In support of Horwitz, I quote Hayek from The Constitution of Liberty (1960/2008):
” This means that when at any time people change their minds how much cash they want to hold in proportion to the payments they make (or, as the economists calls it, they decide to be more or less liquid), the quantity of money should be changed correspondingly. However we define ‘cash,’ people’s propensity to hold part of their resources in this form is subject to considerable fluctuation both over the short and over long periods, and various spontaneous developments (such as, for instance, the credit card and the traverlers’ check) are likely to affect it profoundly. No automatic regulation of the supply of money is likely to bring about the desirable adjustments before such changes in the demand for money or in the supply of substitute for it have had a strong and harmful effect on prices and employment.” (p. 284)
The automatic regulation is, for instance, Friedman’s k-rule.
It’s no secret if you actually read Hayek Brad. Seriously. See the comment below my original. It would also help if you actually read what modern Austrian economists have to say about these issues in the last 30 years, much of which builds on their reading of Hayek. If there’s confusion here, it’s on the part of those who are so convinced that they know what Hayek (or Hoover, or Mellon…) have said that they refuse to believe they could be wrong, even when the textual evidence is in front of them.
And yes, the point IS to stop Q from falling. Hayek’s whole point is that if V falls without a response in M, the right side (P*Q) has to fall, and that’s the outcome he wishes to avoid – just as he believes that preventing increases in M not justified by changes in V will also prevent inflation and the boom of the cycle and the bust that leads to the danger of secondary deflation.
Why is it so hard for you to believe YOUR understanding of Hayek might be inferior to those (of us) who have studied these issues for decades and written about them extensively? Why is it so important for you to be right here? What’s the horrible tragedy if you’re wrong? (Those are not rhetorical questions.)
UPDATE: DeLong has now deleted Horwitz’s second comment. Horwitz’s full original comment can be found here, along with other, now deleted, comments.
UPDATE II: Larry White’s reply to DeLong is now up.