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A Free-Market Monetary System and The Pretense of Knowledge [Kindle Edition]

F.A. Hayek
4.0 out of 5 stars  See all reviews (1 customer review)

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Book Description

A Free-Market Monetary System and The Pretense of Knowledge is a perfect way to introduce yourself and others to F.A. Hayek, a giant of the 20th century.

The book begins with Hayek's best essay on money, which is also his most radical. He states plainly that central banks cannot be reformed; there can never be sound money so long as they are in charge. He calls for their complete abolition and wants the market in charge of money from top to bottom.

His prophetic words predict crisis followed by wild swings in valuation. He also relates the quality of money with the recurrence of crisis, showing an excellent application of Austrian theory.

The second essay is "The Pretense of Knowledge," his shocking Nobel speech, which explains why the very idea of government in our times is unintellectual, presumptuous, and untenable. He is as critical of socialism as he is of interventionism. He shows that the state is not capable of doing all that it is charged with doing, and why giving it any role in social and economic management is dangerous to liberty.

It was not the speech everyone expected. But it lived up to Hayek's lifelong commitment to speaking truth to power.

With two of Hayek's most valuable essays included, this volume packs a timeless, intelligent punch.

To search for Mises Institute titles, enter a keyword and LvMI (short for Ludwig von Mises Institute); e.g., Depression LvMI

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Product details

  • Format: Kindle Edition
  • File Size: 341 KB
  • Print Length: 24 pages
  • Simultaneous Device Usage: Unlimited
  • Publisher: Ludwig von Mises Institute (2 Aug. 2011)
  • Sold by: Amazon Media EU S.à r.l.
  • Language: English
  • ASIN: B005FR7FCO
  • Text-to-Speech: Enabled
  • X-Ray:
  • Word Wise: Not Enabled
  • Enhanced Typesetting: Enabled
  • Average Customer Review: 4.0 out of 5 stars  See all reviews (1 customer review)
  • Amazon Bestsellers Rank: #162,858 Paid in Kindle Store (See Top 100 Paid in Kindle Store)
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Most Helpful Customer Reviews
1 of 1 people found the following review helpful
4.0 out of 5 stars Another aspect on Economics 12 Nov. 2012
By Geb5
Format:Kindle Edition|Verified Purchase
Economics has been described as "the dismal science". Peoples expectations of economics are in yhe main driven by emotion and ignorance. This book examines a niche in the subject and makes for a compelling read
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Most Helpful Customer Reviews on (beta) 4.6 out of 5 stars  8 reviews
4 of 5 people found the following review helpful
4.0 out of 5 stars A bite size book with full banquet impact 8 Feb. 2012
By Daniel Burton - Published on
I recently read the short brochure "A Free-Market Monetary System," a compilation of Friedrich A. Hayak's 1974 Nobel Prize speech "A Pretense of Knowledge" and a short essay on proposing a free-market monetary system (hence, the name, see?). Both are short, and neither waste any time proposing radical changes to what was then, and indeed what is still, the status quo in monetary and economic policy.
Both the essay and the speech are worth reading.

In "A Free Market Monetary System," Hayek warns that as long as central banks are in control of the money supply, we can expect to see the economic highs and lows that we have come to expect, better known as "bubbles" and "recessions." Both are part of the market corrections that result when markets try to correct for artificial highs created by monetary policy in the control of a central bank.
Hayek's recommendation? Let private enterprises issue their own money for circulation.

I am more convinced than ever that if we ever again are going to have decent money, it will not come from government: it will be issued by private enterprise, because providing the public with good money which ic can trust and use can not only be an extremely profitable business; it imposes on the issuer a discipline to which the government has never been and cannot be subject.

Get it? Rather than "Dollars," we would buy, and spend, money that might be called something else. Nike "Swooshes," perhaps, or American Express "credits." The point is that business does not have a monopoly on money the way that government-i.e. central banks-does and therefore has a greater incentive to protect the integrity of that money from inflation and against other currencies by good policies. If it doesn't, people won't use it and it's value will drop. (Can you hear the invisible hand clapping?)

"It is a business which competing enterprise can maintain only if it gives the public as good a money as anybody else," said Hayek. Meanwhile, central banks have no such limits or restraints. Just ask Ben Bernanke.

Could it work? Would the government ever give up its control of the money supply?

Ha! Good one. Have you ever known the government to willingly give up any power?

For an interesting look at how an economy where private enterprise issues its own money, check out the speculative novel "The Unincorporated Man" by Dani Kollin and Eytan Kollin.

The second part of the brochure is the text of "A Pretense of Knowledge." Hayek's speech upon receiving the Nobel Prize for economics in 1974 (he shared the prize with Gunnar Myrdal for their work in "the theory of money and economic fluctuations and for their penetrating analysis of the interdependence of economic, social and institutional phenomena") was a thunderhead of a critique of policies recommended by economists and implemented by governments that had, in his words, "made a mess of things." He attributed the failure of economists to guide public policy more successfully to a "propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences[...]" That attempt, he said, "in our field may lead to outright error." Economics is not an exact science, and the application of "habits of thought to fields different from those in which they have been formed" lead to a "`scientistic' attitude" that the unknowable is knowable.

Economies involve an "organized complexity" that is too deep for economic researchers to obtain. Speaking of wages and prices as an example, Hayek argues that "the determination of [prices and wages] will enter the effects of particular information possessed by every one of the participants in the market process-a sum of facts which in their totality cannot be known to the scientific observer, or to any other single brain." What he is saying is that while my wife at the grocery store may know enough to decide whether one can of salsa is better priced than another-based on a list of criteria only she knows, including flavor, cost relative to other salsas, cost relative to other stores and whether it is worth driving to those other stores to get the salsa, as well as how much my daughters are fussing in the shopping cart to hurry, whether we need salsa at all, and so on-the observer, the economist or market researcher or whoever is watching, can never know all that goes into her mind.

Says Hayek:

"It is indeed the source of the superiority of the market order, and the reason why, when it is not suppressed by the powers of government, it regularly displaces other types of order, that in the resulting allocation of resources more of the knowledge of particular facts will be utilized which exists only dispersed among uncounted persons, than any one person can possess."

Only the market-the composite of my wife, and the hundreds of thousands (or millions) of shoppers out there can determine what the market value-the price-of the salsa should be.

This is why governments mess things up when they try to intervene. Whether it is propping up failing auto companies (go google "GM volt january 2012 sales" to find out that the company bailed out by Washington, D.C. sold a measly 603 Volts last month) or promoting and subsidizing "green" energy companies (for this only, google "Solyndra scandal" where even the New York Times admits that the government took risks that the market would not take. I wonder why the market wouldn't risk it?), when government tries to pick winners better than the market, it inevitably fails or produces less success than the a free market.

This isn't to say that economics is entirely unable to offer predictive power. Quite the contrary. It just can't do so with the same ability as the "hard sciences," such as physics, or chemistry.

Often all that we shall be able to predict will be some abstract characteristic of the pattern that will appear-relations between kinds of elements about which individually we know very little.[...] The danger of which i want to warn is precisely the belief that in order to have a claim to be accepted as scientific it is necessary to achieve more. This way lies charlatanism and worse. To act on the belief that that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which we do not possess, is likely to make us do much harm.

Neither the Members of Congress making laws, the President and his Executive Branch (proposing, executing, and, also, making laws), nor judges in their black robes know enough to out think the decisions of millions or billions of people that make up a market.

"But in the social field the erroneous belief that the exercise of some power would have beneficial consequences is likely to lead to a new power to coerce other men being conferred on some authority. Even if such power is not in itself bad, its exercise is likely to impede the functioning of those spontaneous ordering forces by which, without understanding them, man is in fact so largely assisted in the pursuit of his aims."

We may not always understand why the market chooses what it does, but in large part the market chooses, through spontaneity, that which helps man get what he wants.

In other words, Hayeks' message to economists and policy makers is simple: get out of the way and let the market choose. It's much smarter than you are.
1 of 1 people found the following review helpful
5.0 out of 5 stars More Relevant than Ever 27 July 2013
By Alex - Published on
Format:Kindle Edition
There are no doubt many economists, even of the Austrian school, who are tired of reading about the power of the free market. For socialists it is blasphemous to praise profits or success, for others it is so self-evident that they do not feel the need to find justifications for their beliefs. Corruption and tyranny most often come from government and governmental involvement in private enterprise. Hayek's thoughts on currency are extremely prescient. Prior to the information age they were little more than pipe dreams, but with the invention of the internet, the popularization of the Forex and the emergence of cryptocurrencies like Bitcoin, it is likely that Hayek's dream of competition between currencies will come true. I believe this will undoubtedly be beneficial to those who wish to protect themselves from inflation and to money markets across the world.
I cannot call myself a libertarian because it is clear that there are times in which the interests of corporations must be kept in check by government agencies like the FDA and the EPA. Yet, even these organizations, which supposedly headed by experts, occasionally fail due to sheer incompetence, corruption or some combination of the two. That being said, any government plans to control wages, prices or production are doomed to fail. They have been attempted repeatedly throughout history, but like any other intuitive fallacy the notion of a planned economy refuses to die. Hayek warns us of presumptuous sociologists, political scientists, anthropologists and sociologists. To call these fields sciences is a horrible mistake. Sociology has not yet yielded an equivalent to the polio vaccine or the microprocessor. Economics, though it was labeled dismal by Carlyle, consistently provides better predictions than these academic "disciplines" on which so much junk science is based. Yet no economist worth his salt claims that his science is about predicting the future or absolute precision. One can only find absolute precision in pure mathematics and some branches of physics. Keynes, Hayek's arch-rival, also emphasized the unpredictability of markets. However, Keynes viewed these shifts as horrendous volatility that must be done away with. In lieu of natural fluctuations he belived that he and a few select aristocrats could guide markets in the right direction. Hayek did not.
The crisis we found ourselves was the result of artificially low interest rates. Hayek wished to prevent the illness. Keynes wished to treat the symptoms. These are brief but wonderful essays. You need them in your library.
1 of 1 people found the following review helpful
5.0 out of 5 stars Hayek Common Sense Today 12 Sept. 2012
By Leonard Mygatt - Published on
Format:Kindle Edition|Verified Purchase
Having read other works by Hayek, I must say this particular work is easier to read, in fact extremely clear and very timely. Hayek lays out a simple, logical argument about what economics is and how to understand its limits. He speaks clearly on the subject of the causes of market upsets and how the market works. It is a great read; short and clear. Well worth the cost and a hour or two to read.
5.0 out of 5 stars Intellectual "Smack down" of Neo-Keynesianism and central planning. 21 May 2014
By C E Dowalt - Published on
Format:Kindle Edition|Verified Purchase
Hayek's theory in this book is that economic central planning MUST fail because the information gap needed to run a central planning regime can never be satisfied.

The book offers a rigorous refutation of the psuedo-scientific pretensions of of economic central planners and why such regimes always must fail.
5.0 out of 5 stars too free or not too free 30 May 2013
By dogsbody - Published on
Format:Kindle Edition|Verified Purchase
Have markets been underestimated and excessively derided? Does the media, political correctness and official propaganda and regulation, make you wonder about alternatives? Is the market an alternative? If these are questions you have asked yourself, then this is an essential read.
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