I was surprised to read what I thought was an exceedingly fair and illuminating review of two new books on Friedrich Hayek in the current (December 7) issue of the New York Review of Books. The review is by the financial historian Edward Chancellor. In “The Naturalist” he takes up Hayek: A Life, 1899–1950, by Bruce Caldwell and Hansjoerg Klausinger, and Liberalism’s Last Man: Hayek in the Age of Political Capitalism, by Vikash Yadav.
Toward the end of the review Chancellor writes:
Keynes’s biographer Robert Skidelsky maintains that Hayek “was a great thinker rather than a great economist.” This is unfair. While The Pure Theory of Capital was not a success, Hayek’s writings on monetary policy, and in particular his critique of inflation targeting, remain relevant today. In the aftermath of the global financial crisis of 2007–2008, central banks around the world set interest rates at zero (and in some places below zero) in order to keep inflation close to their targets. Yet among the unintended consequences of ultra-easy monetary policy w[ere] the appearance of multiple asset price bubbles, excessive risk-taking by investors seeking to make up for lost income, a worrying growth in public and corporate debt, and the widespread misallocation of capital, whether in pie-in-the-sky ventures in Silicon Valley or low-return “zombie” companies. Now that interest rates are rising, these financial fragilities have been exposed, and central bankers are the objects of much criticism. Any reconsideration of contemporary monetary policy should properly start with a study of Hayek’s work from the 1920s.
Here Chancellor drops footnote 4:
See, for instance, William R. White, “Is Price Stability Enough?,” Bank for International Settlements, April 2006; and “Ultra Easy Monetary Policy and the Law of Unintended Consequences,” Federal Reserve Bank of Dallas, August 2012.
I should add that Hayek’s Constitution of Liberty (1960) and several other of his works go unmentioned and appear to me beyond the scope of Chancellor’s review. David Henderson provides a good overview of Hayek’s work here.
Chancellor is the author of Devil Take the Hindmost: A History of Financial Speculation and, most recently, The Price of Time: The Real Story of Interest.
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