Did Hayek and Robbins Deepen the Great Depression?


  • The author thanks Roger Garrison, David Laidler, Masao Ogaki, George Selgin, Dick Timberlake, the referees, and seminar participants at the Foundation for Economic Education for comments. The usual disclaimer applies.


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.