Abstract
From the Austrian point of view, Keynesian policies provided temporary stimulation of output and employment, but the longer-term effects have been to produce serious inflation and unemployment. The only curious feature is that the predicted consequences were so long delayed. The only solution to the problem is a painful period of readjustment before full employment and stable prices can be achieved through the operation of free-market forces.
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Notes and References
For the correct working of the process by means of movements in relative prices we must assume that initially the supply is maintained, being based upon work done in the past, but eventually it will fall off as factors are drawn away and consumption goods prices will rise. See J. R. Hicks, ‘The Hayek Story’, in Critical Essays in Monetary Theory (Oxford: Clarendon Press, 1967) pp. 211–12.
See F. A. Hayek, New Studies in Philosophy, Politics, Economics and the History of Ideas (London: Routledge & Kegan Paul, 1978) p. 230; after (Sir) Nicholas Kaldor, formerly Keynes’s junior colleague at Cambridge. Kaldor’s influence on the formation of post-war employment policy through, for example, his work with Sir William (Lord) Be-veridge, will be mentioned again, in Chapter 23 of present volume.
N. P. Barry, Hayek’s Social and Economic Philosophy (London: Macmillan, 1979) p. 168. The references to Hayek’s crucial omission are on pages 155, 167, 170.
F. Machlup (ed.), Essays on Hayek (London: Routledge & Kegan Paul, 1977).
In his use of Austrian capital theory as a basis for his trade cycle, Hayek also overlooks the influence of the durability of existing capital as a constraint on investment. He also omits the role of expectations in the relationship between investment and saving. Finally, he treats the economic system as hydraulic, with the flow of money stimulating the system to activity and abstracting from the psychology of economic behaviour. See G. L. S. Shackle, ‘F.A. Hayek, 1899-’, in D. P. O’Brien and J. R. Presley (eds), Pioneers of Modern Economics in Britain (London: Macmillan, 1981) pp. 239–42.
T. Wilson, ‘Policy in War and Peace: The Recommendations of J. M. Keynes’, in A. P. Thirlwall (ed.), Keynes as a Policy Adviser (London: Macmillan, 1982) p. 48.
J. K. Galbraith, Money (London: Penguin, 1976) p. 229.
J. M. Keynes, ‘The Pure Theory of Money. A Reply to Dr. Hayek’, Economica (Nov. 1931), in CW, XIII, p. 252.
F. A. Hayek, New Studies in Philosophy, Politics, Economics and the History of Ideas (London: Routledge & Kegan Paul , 1978) p. 211.
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© 1987 Gordon A. Fletcher
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Fletcher, G.A. (1987). The Austrians II: Hayek and the Trade Cycle. In: The Keynesian Revolution and its Critics. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-08736-5_20
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