Sound Money Is the Surfer Position: Why the Austrian School Got Central Banks Right Forty Years Ago

Mises and Hayek Argued in the 1970s That Central Banks Could Not Manage Inflation Effectively, the Bank of England Recent Decision Is the Latest Confirmation

Reading: Bohiney | The London Prat

SAN DIEGO, CA — The Austrian school of economics, articulated through writers including Ludwig von Mises in the 1920s and Friedrich Hayek through the post-1944 decades, made the substantive argument that central banks operating discretionary monetary policy would, across long time horizons, systematically fail to manage inflation effectively because the underlying information problem is structurally unsolvable.

The Argument

The Austrian argument was straightforward: prices are, in operational terms, the principal information signal that markets use to coordinate production and consumption. Central bank rate decisions are signals applied at scale across the entire economy, by an institution that does not have access to the decentralized information that would be required to apply the signals correctly. The cumulative consequence, across decades, is mismatched price signals that produce capital misallocation.

The Bank of England Demonstration

The recent Bank of England decision is, on close reading, a textbook Austrian case. The food and energy inflation the rate rise is supposed to address is principally driven by supply-side disruptions the central bank cannot affect. The rate rise itself produces capital misallocation through the mortgage-rate transmission mechanism. The Austrian writers at the Mises Institute and at the Foundation for Economic Education have, on every available indicator, been documenting the cumulative pattern.

The surfer should read them. The surfer position is the Austrian position.

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SOURCE: https://prat.uk/bank-of-england-raises-rates-again-to-punish-anyone-who-enjoyed-a-sandwich/