Monetary Equilibrium Theory is a beautiful theory, but in a world of central banking I wonder if it can ever be implemented effectively. And if it cannot, does it then run the risk of being discredited? There are two impediments -- (1) inability to sort out in real time the difference between "good" and "bad" deflation, and (2) the political consequences of inflation and deflation being such as they are that there is a bias in political actors to avoid deflation at all costs.
In turns out, Hayek identified this problem: "the chief source of the existing inflationary bias is the general belief that deflation, the opposite of inflation, is so much more to be feared that, in order to keep on the safe side, a persistent error in the direction of inflation is preferable. But, as we do not know how to keep prices completely stable and can achieve stability only by correcting any small movement in either direction, the determination to avoid deflation at any cost must result in cumulative inflation." (Constitution of Liberty, 1960, p. 330)
I have begun working on a paper with Dan Smith, which building on the idea of "robust political economy" that Pete Leeson and I developed, we are looking at the search for rules and institutions for monetary policy by the three leading classical liberal political economists of the 20th century: Hayek, Friedman, and Buchanan. Each thought hard throughout their respective careers to find the appropriate monetary rule that would effectively bind the monetary authority. Each were frustrated with earlier answers and this led them to continue their search. In his 90s, James Buchanan is still searching for the appropriate monetary constitution.