The paper "Monetary Theory and the Trade Cycle by Fredrich Hayek's" is an outstanding example of a micro and macroeconomic book report. In his book “ Monetary Theory and the Trade Cycle” , Hayek (1933, p. 17) underlines the monetary causes that could result in cyclical fluctuations, which was harmonized by ‘ Prices and Production’ placing emphasis more on the successive transformations in real production structure. These are the actual events of the trade cycle. At the time when Hayek was finishing his research on ‘ monetary theory and trade theory’ , macroeconomics set forth by Keynesian was dominating.
In due course, Hayek’ s monetary theory was obscured by what is commonly referred to as the Keynesian revolution. For this reason, Hayek shifted his focus on other crucial analytical issues, particularly, how economic activities are influenced by information. According to Hayek, all the participants in the market are pursuing their own interests on account of the knowledge of their individual conditions in addition to the information communicated to them by the means of the price system. Hayek insists that if monetary disturbance systematically distorts the price system, the actions and choices of the market participants will be based on misinformation.
For this reason, there will be discoordination in the economy. In the book, Hayek asserts that the resources can be misallocated in reaction to the distorted price provided that the sale of the resources happens earlier. The author argues that it is imperative to understand that it is to monetary causes that people have to ascribe the pricing process, divergences at the time of the Trade Cycle. Arguments Put Forward by Hayek Hayek argued that a number of his fellow Austrian economists were faultily emphasizing too much on central banks as the main inflation source.
According to Hayek, the booming process described by Austrian economists has to recur under the present credit organisation. This presents a tendency intrinsic in the economic system; therefore, should be considered as an endogenous theory. Hayek argues that the forces behind the bankers’ capitalistic competition can result in inflationary expansion.
ReferenceHayek, F.A., 1933. Monetary Theory and the Trade Cycle. London: Jonathan Cape.