Hayek on the Fed & the Great Depression

From a 1977 interview:

” I think it is certainly true that ending an inflation need not lead to that long-lasting period of unemployment like the 1930s, because then the monetary policy was not only wrong during the boom but equally wrong during the Depression. First, they prolonged the boom and caused a worse depression, and then they allowed a deflation to go on and prolonged the Depression.”

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One Response to Hayek on the Fed & the Great Depression

  1. George Machen says:

    > …allowed a deflation to go
    > on and prolonged the Depression.

    How square this with the short-lived, gov’t-intervention-free 1920-21 Great Recession (which was actually worse than the opening salvo of the Great Depression, 1929-32)? The deflation in prices, output ~and~ money were allowed to occur. Seems to me that “liquidate, liquidate, liquidate” of Austrian-type malinvestments were what turned-around the deflations, not “stabilizing NGDP.”

    http://research.stlouisfed.org/fred2/data/PPIACO_Max_630_378.png

    http://www.nowandfutures.com/d2/m2_base_1920_1940.png

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