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Keynesian Economics in a Nutshell

07/03/2013

Hayek on Keynes:

The decisive assumption on which Keynes’s original argument rested and which has since ruled policy is that it is impossible ever to reduce the money wages of a substantial group of workers without causing extensive unemployment. The conclusion which Lord Keynes drew from this, and which the whole of his theoretical system was intended to justify, was that since money wages can in practice not be lowered, the adjustment necessary, whenever wages have become too high to allow "full employment," must be effected by the devious process of reducing the value of money. A society which accepts this is bound for a continuous process of inflation.

From Sudha Shenoy's excellent 1972 compilation, A Tiger by the Tail: The Keynesian Legacy of Inflation (p. 68).

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Peter G. Klein is Carl Menger Research Fellow of the Mises Institute and W. W. Caruth Chair and Professor of Entrepreneurship at Baylor University's Hankamer School of Business.