The details of the future will remain forever veiled to us. But give agypsy seer a Ph.D. in economics and arm her with statistics and mathe-matical models, and people suddenly start taking her seriously. Shewill be invited to testify before Congress and held up by State TV as anexpert in business forecasting. But from an analytical point of view,what she does is no different from what she did as Sister Sarah at aroadside stand. (Rockwell 2000, p. 4)
n the middle to late years of the twentieth century, it became common-place in expositions of mainstream economics to claim that labor marketadjustments are grossly inadequate as a corrective mechanism for busi-ness-cycle downturns. Probably the most cited empirical evidence in supportof this proposition was, and still is, the economic events of the 1930s. On thetheoretical side, the reference
was, of course, John Maynard Keynes’s
The General Theory of Employment, Interest, and Money
, Keynes set the spiritual tone for at least the next half-century with hisremark, “It can only be a foolish person who would prefer a flexible wagepolicy to a flexible money policy” (1936, p. 268). This was to translate into thenotion that “money wage rates don’t matter.” Contrast these views with thoseof Ludwig von Mises. In his
(1998, pp. 577–78) he states,
[it is] vain to justify a new credit expansion by referring to unusedcapacity, unsold . . . stocks and unemployed workers . . . The belief ofthe advocates of credit expansion and inflation that abstention fromfurther . . . expansion and inflation . . . would perpetuate the depressionis utterly false. The remedies these authors suggest . . . would merelyupset the process of recovery.
THE QUARTERLY JOURNAL OF AUSTRIAN ECONOMICS VOL. 3, NO. 3 (FALL 2000): 19–33
are both professors of economics at OhioUniversity.
We also recommend the section of
(1998) entitled, “The Chimera ofContracyclical Policies” and volume 9 of
The Collected Works of F. A. Hayek
(1989–1995, esp.pp. 16–18).