Hayekian case against nominal spending stabilization policy

Mateusz Benedyk

Chapter 11 in Hayek’s Living Legacy in Economics, Philosophy and Policy, 2026, pp 189-201 from Edward Elgar Publishing

Abstract: This chapter presents several arguments Friedrich August von Hayek presented against monetary policy of stabilizing the level of nominal spending. I argue that Hayek, even though sometimes presented as advocating such a monetary policy rule, saw three big problems with the nominal spending rule. First, monetary authorities would have to increase or decrease the money supply in exactly these places where changes in money demand take place. Second, changes in the supply of money would have to occur in such a way as not to disturb the ratio of consumption and investment spending in the economy. Third, nominal spending stabilization policy in a single country would create monetary disturbances by means of influencing exchange rates and therefore international trade and investment flows. Therefore, such a monetary rule is hard to reconcile with Hayek's business cycle and monetary theory.

Keywords: Monetary Policy; Stabilization Policy; Nominal Spending Rule; Business Cycle Theory; Monetary Theory; Money Supply (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035394234
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