article: “Did Hayek and Robbins Deepen the Great Depression?”


“Contrary to some accounts, the Hayek–Robbins (“Austrian”) theory of the business cycle did not prescribe a monetary policy of “liquidationism” in the sense of passive indifference to sharp deflation during the early years of the Great Depression. There is no evidence that Hayek or Robbins influenced any “liquidationist” in the Hoover administration or the Federal Reserve System. Federal Reserve policy during the Great Depression was instead influenced by the real bills doctrine, which (despite some apparent similarities) was diametrically opposed in key respects to Hayek’s norms for central bank policy.”

pdf: Lawrence White,  “Did Hayek and Robbins Deepen the Great Depression?”Journal of Money, Credit and Banking, Volume 40 Issue 4, (2008), pages 751 – 768.


“In allowing the contraction of nominal income (MV) to proceed without
offsetting monetary countermeasures in the 1930-33 period, American policymakers were not acting on the advice of F. A. Hayek and Lionel Robbins, but on the advice of Federal Reserve officials who subscribed to versions of the real bills doctrine. There is no evidence that Hoover administration or Federal Reserve officials were reading Hayek or Robbins in the early 1930s. Hayek’s monetary policy norm in fact called for the stabilization of nominal income (MV), and thus for central bank action to prevent its contraction. Hayek and Robbins themselves, however, did not call for policy to stabilize nominal income at the time.  Hayek thought, based on ad hoc (“political”) reasoning and contrary to his own theoretical norm, that a brief deflation might have a salutary effect on recovery by restoring flexibility to wages. Robbins spurned anti-deflationary monetary expansion on the grounds that excessive financial ease had led to false prosperity and its collapse in the first place. Both later regretted their mistake in not promptly recognizing the need to prevent the damage done by the contraction of money and nominal income.”

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One Response to article: “Did Hayek and Robbins Deepen the Great Depression?”

  1. Rafe says:

    Is there anything on line to explain why Robbins did a U turn on Keynesianism? I know it is in his autobiography but this is not in the library at Sydney University. Nor is it in my local council library, although, unbelievably, they have “Human Action”.

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