Friedrich a Hayek

1632 WordsAug 31, 20137 Pages
Running head: FRIEDRICH HAYEK 1 Friedrich August Von Hayek Donotra Woods Post University FRIEDRICH HAYEK 2 According to Hayek (1994, p. 168) “Probably it is true enough that the great majority are rarely capable of thinking independently, that on most questions they accept views which they find ready-made, and that they will be equally content if born or coaxed into one set of beliefs or another. In any society freedom of thought will probably be of direct significance only for a small minority. But…show more content…
Hayek acknowledged trade cycles as monetary authorized by the government, a semi-monopoly is created and basic money is controlled. He was convinced in order to keep the economy in good condition, it was important to have a limited democracy. Hayek's theory of business cycles and the role of monetary policy create a boom and bust cycle. The booms and busts develop when the central bank independently decides to cheapen credit, and expand the supply of loanable funds. In like manner, investors become more optimistic in new technology they want to invest in. They come to banks when they want to borrow more. Instead, banks allowed the interest rate to go up, and the central bank becomes involved by injecting enough credit to keep the interest rate from rising. In the presence of an on-going boom, the way to prevent the boom from becoming FRIEDRICH HAYEK 5 an uncontrollable inflationary spiral was to stop increases in the quantity of money, or at least reduce the rate to the “rate of growth of production,” ...but “[i]t does not follow that we should not stop a real deflation (Cochran, 2011, p. 276). He think the denationalization of money, is the best way to prevent future monetary shock. Hayek strongly believed fighting inflation with unemployment would be the best decision. But, Keynes believed that fighting unemployment with inflation
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