Lord Keynes — Yes, Virginia, Hayek was a Liquidationist in 1932

Hayek quotes setting the record straight, both on his original position and then changing his mind.

Social Democracy For The 21St Century: A Post Keynesian Perspective
Yes, Virginia, Hayek was a Liquidationist in 1932
Lord Keynes

Lord Keynes — Liquidationism and early 1930s Germany: Not a Good Mix!

Eye-opener. It was not the Weimar hyperinflation that brought Hitler and the Nazis to power but deflationary depression.

By 1928, during the economic boom in Germany, the Nazi party vote looked like it was almost dead and was only 2.6%. Remarkably, even in the aftermath of the Weimar hyperinflation in 1924 it was only 3%. 

When the deflationary depression struck Germany from 1929–1932, it soared to 18.3% (September 1930), then 37.3% (July 1932), and finally to 43.9% in March 1933 in the aftermath of the Great Depression.

Social Democracy For The 21St Century: A Post Keynesian Perspective
Liquidationism and early 1930s Germany: Not a Good Mix!
Lord Keynes

Ominously, deflationary depression threatens Europe again owing to austerity and the persistent German anti-inflation fetish. Some lessons are never learned.

See also Yves Smith,  Is the West Risking Financial Blowback From Sanctions on Russia? at Naked Capitalism.

Matt O'Brien,  Europe’s Greater Depression is worse than the 1930s at the Washington Post.

Lord Keynes — A Candid Admission from Hayek?

Hayek therefore seems to have conceded the need for monetarist or Keynesian interventions to prevent deflationary depressions: he renounced his earlier liquidationism.

But to return to the more interesting point: if Hayek’s ABCT never claimed to explain anything but “the upper turning point of the typical nineteenth-century business cycle,” then why did Hayek apply it to 20th century business cycles and the Great Depression?

Social Democracy For The 21St Century: A Post Keynesian Perspective
A Candid Admission from Hayek?Lord Keynes

"Lord Keynes" — Austrians Can’t Get their Story Straight on the Effects of Austerity

Here is something I have noticed of late in the ongoing debates on austerity: some Austrians argue that fiscal contraction can directly lead to GDP growth and recovery (a line taken by some neoclassical economists with their pro-growth austerity fables), and they argue that, if only governments would do nothing and pursue austerity, strong recoveries would ensue. In the process, these Austrians seem to deny that recession or depression is the result of fiscal contraction.

The idea is blatantly contradicted by their own business cycle theory, which holds that prolongation of a recession or depression to its “natural” end, and purging malinvestments in the process, is a necessary consequence of the “do nothing” response itself (called “liquidationism”). Therefore it is bizarre and stupid in the extreme for any Austrian adherent of the Hayekian business cycle theory to argue that austerity or a “do nothing” policy will lead directly to growth.

Before he renounced liquidationism, Hayek inPrices and Production explained exactly why nothing must be done during a credit-caused recession, and why the economy and society must suffer the consequences:

Read the rest at Social Democracy for the 21st Century
Austrians Can’t Get their Story Straight on the Effects of Austerity
by Lord Keynes