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'Misguided monetary messages': The Austrian case, 1931 - 34

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  • Hansjorg Klausinger

Abstract

This paper deals with the apparent contradiction between the monetarist explanation of the Great Depression (as the result of a great monetary contraction) and the Austrian economists' diagnosis, which puts the blame on the inflationist policies pursued by the monetary authorities. Although tempting, the solution to this puzzle does not lie in the Austrians' misperception of the monetary facts but in their specific theory of deflation. Thereby they distinguished between 'automatic deflation' (as an endogenous response of the market system) and 'deflationary policies' (as exogenous disturbances). Thus, they were able to identify inflationist policies amidst an automatically shrinking money supply.

Suggested Citation

  • Hansjorg Klausinger, 2005. "'Misguided monetary messages': The Austrian case, 1931 - 34," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 12(1), pages 25-45.
    • Handle: RePEc:taf:eujhet:v:12:y:2005:i:1:p:25-45
    DOI: 10.1080/0967256042000338023
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    References listed on IDEAS

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    1. Felix Butschek, 1985. "Die österreichische Wirtschaft im 20. Jahrhundert," WIFO Studies, WIFO, number 2886.
    2. Hayek, F. A., 1995. "Contra Keynes and Cambridge," University of Chicago Press Economics Books, University of Chicago Press, number 9780226320656 edited by Caldwell, Bruce, September.
    3. Friedman, Milton, 1972. "Comments on the Critics," Journal of Political Economy, University of Chicago Press, vol. 80(5), pages 906-950, Sept.-Oct.
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