Preventing the “Abuses” of Democracy: Hayek,the “Military Usurper” and Transitional Dictatorship in Chile?

Hayek famously claimed that he would prefer a “liberal” dictator to “democratic government lacking in liberalism.” While Hayek's views of the Pinochet regime have generated much controversy, surprisingly little has been written about Hayek's defense of transitional dictatorship. Making use of previously un‐translated foreign language archival material, this paper helps shed light on Hayek's views of authoritarianism, totalitarianism, transitional dictatorship, and the Pinochet regime as well as helping to separate Hayekian ‘fact’ from Hayekian ‘fiction’.     

Seven Fallacies Concerning Milton Friedman's “The Role of Monetary Policy”

This paper analyzes Milton Friedman's (1968a) article “The Role of Monetary Policy,” via a discussion of seven fallacies concerning the article. These fallacies are as follows: (i) “The Role of Monetary Policy” was Friedman's first public statement of the natural rate hypothesis. (ii) The Friedman–Phelps Phillips curve was already present in Samuelson and Solow's (1960) analysis. (iii) Friedman's specification of the Phillips curve was based on perfect competition and no nominal rigidities. (iv) Friedman's (1968a) account of monetary policy in the Great Depression contradicted the Monetary History’s version. (v) Friedman (1968a) stated that a monetary expansion will keep the unemployment rate and the real interest rate below their natural rates for two decades. (vi) The zero lower bound on nominal interest rates invalidates the natural rate hypothesis. (vii) Friedman's (1968a) treatment of an interest-rate peg was refuted by the rational expectations revolution. The discussion lays out the reasons why each of these seven items is a fallacy and infers key aspects of the framework underlying Friedman's (1968a) analysis.     

DANGERS OF CAPITAL FORBEARANCE: THE CASE OF THE FSLIC AND "ZOMBIE" S&Ls

This paper portrays Federal Savings and Loan Insurance Corporation (FSLIC) forbearance and congressional unwillingness to increase the FSLIC's human or capital resources to the size necessary to handle developing economic insolvencies as a joint policy crime that has served to bifurcate the savings and loan industry into the living and the living dead. As agents for the taxpayer, Congress and the FSLIC have assumed too much discretion and have chosen to exercise that discretion myopically. An agent has a duty to represent its principal's economic interests more effectively than this. The FSLIC's policy touchstone should be to negotiate and enforce the same kind of covenant provisions that a prudent private guarantor would require.     

Modeling Structural and Temporal Variation in the Market's Valuation of Banking Firms

Hidden capital exists whenever the accounting measure of a firm's net worth diverges from its economic value. Such unbooked capital has on-balance-sheet and off-balance-sheet sources. This paper develops a model to estimate both forms of hidden capital and to test hypotheses about their determinants. In effect, the analysis expands the two-index model by endogenizing the market and interest-rate sensitivities of any stock and decomposing each sensitivity into on-balance-sheet and off-balance-sheet elements. For a sample of banks during 1975–1985, the model finds considerable variation in both forms of hidden capital.