What is the Monetarist solution to asset price deflation?

CapitalismWorks_IHB

CapitalismWorks_IHB

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I understand the monetartist view on inflation and money supply, however I cannot grasp how Austrian economics addresses asset price deflation. It seems to me that Keynes provides the only viable solution to address asset price deflation...
 
The Austrian view is you do nothing. You do not need a solution. You do not intervene in free markets. Intervention always costs more than free markets. Failure is part of free markets. Deflation and inflation would be minimal with a free market market monetary system including free market interest rates.
 
OK, that seems pretty simple. Doesn't that model seem to lead to some particularly nasty outcomes from the present situation?



I am going to display my ignorance here, but can anyone point to examples of deflationary environments in which Austrian policies were applied. How did it/they work out?
 
[quote author="CapitalismWorks" date=1217284998]OK, that seems pretty simple. Doesn't that model seem to lead to some particularly nasty outcomes from the present situation?



I am going to display my ignorance here, but can anyone point to examples of deflationary environments in which Austrian policies were applied. How did it/they work out?</blockquote>


IMO, the outcome is inevitable, and the longer it is prolonged by interventions, the nastier the outcome will be. I do not know of any deflationary enviornments in which Austrian policies were applied. Sorry. I do not know of any enviornments in which Austrian policies were applied, but I guess I am showing my ignorance and forgetfulness.


Austrian theory says that left to their own devices, free markets will have ups and downs, and inflations and deflations, but they will be minimal. The business cycle is normal, but the extremes are produced by intervention and interference of the resolution of the business cycle.
 
Wasn't the question about the Monetarist solution? Monetarist is not Austrian even if they're both cited by conservatives.



The monetarist solution is to print money to keep the money supply from dropping, helicoptering it in if necessary. Milton Friendman is actually the source of the "helicoptering money" phrase, from his book "The Optimum Quantity of Money."



The Austrian Von Mises also said that after inflation, the government should avoid compensating deflation, although he was not so explicit about what to do with a liquidity trap. I'm not an Austrian expert, but Von Mises did advise the Austrian government, and he did often advise them to do things. "Do nothing" isn't an accurate assessment.
 
<em>The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution... Bankers are more dangerous than standing armies... [and] If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered.</em> - Thomas Jefferson
 
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