Hayek didn't really adequately defend a deflationary currency at all. Hayek was attacking a related, but different underconsumptionist argument that consumption was more important than investment.

The argument against [sustained] deflation is that investment will be reduced along with consumption. In order for investment to take place, it is necessary [though not sufficient] for the investor to expect to earn a money profit as a result. In the case of sustained deflation resulting from an economy being tied to a fixed supply of money, the expected money return on an average investment over a time period is negative (especially after adjusting for risk) and the expected real return to burying money in the garden is positive. Thus the money stock is more likely to be buried in the garden and less likely to be invested in production, with the result that less stuff is produced and sold than otherwise could have been.

The best thing that can be said about Hayek's argument as a defence of this is that he points out that profitable companies confident of still having a market in future might still be inclined to invest money in cutting production costs (which is true, and necessary for the deflation to be sustained, otherwise you can expect prices of goods to start rising again in future as a result of greatly reduced production) but there's no reason to expect that level of investment to not be lower than an economy where nobody is incentivised to hoard.

(the original paper is included in this compendium for those interested http://www.hayek.sk/wp-content/uploads/2012/12/hayekcollecti...)

If you keep the same deflationary money over the years, you are making a profit. So what's "good" is not a money which supply grows or shrinks, but a money with which people can make good predictions and plans accordingly.

Plus, burying your money is withdrawing it from the money supply, maybe it has effects like "giving it to everybody" ? (added the risk that you can dig the money and put it back into circulation)

How do you know an elastic money supply is not better?

What is your criterion : goal for measuring how good a currency is?

He didn't win a Nobel Prize.

Neither did he come up with anything that actually passes muster.

Getting a chocolate medal from your mates in the same club doesn't qualify as credentials.

> Hayek shared the 1974 Nobel Memorial Prize in Economic Sciences with Gunnar Myrdal for his "pioneering work in the theory of money and economic fluctuations and ... penetrating analysis of the interdependence of economic, social and institutional phenomena."

https://en.wikipedia.org/wiki/Friedrich_Hayek

I suspect that rather than quibbling on the historical facts of the prizes award, the person you're responding to doesn't consider the Swedish National Bank's Prize in Economic Sciences in Memory of Alfred Nobel to be a genuine Nobel Prize.

Thank you for the clarification. It's one I wish 'neilwilson had made as well, as it's easy to understand why one would think otherwise, particularly as they're announced and awarded along with the other Nobel laureates. Upon further reading, the prize's history with respect to Hayek is even more interesting:

> In his speech at the 1974 Nobel Prize banquet, Friedrich Hayek stated that had he been consulted on the establishment of a Nobel Prize in economics, he would "have decidedly advised against it" primarily because, "The Nobel Prize confers on an individual an authority which in economics no man ought to possess.... This does not matter in the natural sciences. Here the influence exercised by an individual is chiefly an influence on his fellow experts; and they will soon cut him down to size if he exceeds his competence. But the influence of the economist that mainly matters is an influence over laymen: politicians, journalists, civil servants and the public generally."

https://en.wikipedia.org/wiki/Nobel_Memorial_Prize_in_Econom...

Thanks again. I appreciate the insight.

That's a very interesting quote by Hayek.