At root, the problems with the Federal Reserve (and many other central banks) are institutional. The repeated recessions and crises in the era of the Fed show that we need a radical reimagination of the basic institutions of monetary policy. In this chapter, we survey the work of the three great classically liberal Nobel laureates of the twentieth century – James Buchanan, F. A. Hayek, and Milton Friedman – to show that each of them gave serious consideration to monetary-institutional fundamentals. Our focus is not on their particular conclusions, but on how they thought about the problems of monetary institutional design. This represents a very different style of scholarship than macroeconomists and monetary economists currently practice. Unless scholars engage the research projects of Buchanan, Hayek, and Friedman, research in monetary economics will not be of much help in achieving lasting macroeconomic stability.

“Mutual Coercion, Mutually Agreed Upon” (the phrase comes from Garrett Hardin's classic essay "Tragedy of the Commons") sees the democratic reforms and social reorganization of Attica by the Athenian statesman Cleisthenes in 508 BCE as a case study in systems leveraging. Cleisthenes’s reforms are situated in a nexus of Presocratic (Pythagorean) thinking about limit (peras) and in the context of ideas that circulated at the time under the banners of isonomy (isonomia) and harmony (harmonia). The ancient Athenians, newly freed from political tyranny and the social upheaval of 508, recognized the intrinsic value of limits and restraint and built them into the structures of democratic life. Their example, I argue further, stands as a challenge to environmental and social problems faced by democratic regimes today.

the ideological spectrum. Buchanan wrote against Hayek’s evolutionary efficiency claims as well as efficiency claims in rational expectations theories. Hayek’s endorsement of the “liberal dictator” provides the background for Buchanan’s concern with anti-democratic elements of the Mont Pelerin Society. The demise of the Soviet Union has obscured how controversial Nutter’s NBER work was. In the early 1960s, a principles of economics textbook labeled Nutter’s results, reported in Hazlitt’s Newsweek column, as biased. Nutter and Rostow, who differed politically, agreed in their analyses of Soviet growth that Russian culture persisted in spite of the transition to the Soviet Union. Tullock’s long-standing friendship with Popper was critical for the early Virginia School’s analytical egalitarianism in which the motivation of the economist is no different than the motivation of those in the economist’s model. This speaks to ideological motivation. Tullock held that, since economics did not enforce replication, it lacked standing as science and was instead akin to a “racket.”