"When it comes to the 1930s, history has not looked kindly on Hayek's arguments. The classic study of the depression by Milton Friedman and Anna Schwartz, decades later, made a convincing case that it was caused by the US central bank pumping too little money into the economy, not too much.
What's interesting to note is that Milton Friedman and John Maynard Keynes are on the same side of that argument - united against Friedrich Hayek.
Given a bump in the road, Friedman and Keynes each thought policymakers could come to the rescue. And each thought, in normal times, that monetary policy was the best way to do it. The difference between them - much exaggerated in the historical record - was that Keynes saw a big role for fiscal policy too, particularly in the aftermath of financial crises. What makes Hayek a different kind of free-market economist is that he distrusted both sets of policy machinery for guiding the economy - monetary and fiscal. Maybe it was the hyperinflation he'd lived through as a young adult in Austria, in the 1920s, but he simply did not believe governments should or could iron out the bumps in the economic cycle.
The only government power he had confidence in was the power to make things worse, by debauching the currency. Hayek's view has resonance for anyone who feels uneasy about governments bailing out bankers and central banks pumping hundreds of billions of dollars into the economy.
Whether it's the European central bank lending trillions to European banks, or a third bout of quantitative easing by the Federal Reserve, it feels, to many, like these institutions are simply kicking the can down the road - deferring the moment of truth.
So you can understand why many would be turning to Austrians like Hayek for a different kind of answer. But whether any government or mainstream politician is really prepared to step back, and let the system "heal itself" - whatever the short-term consequences - is another matter. They certainly weren't in 2008.I asked Ron Paul whether he thought Americans were ready to be "Austrians". He paused. "Well, I think you'd have to change the name," he deadpanned. "But you know, I went to Austria last year. They're completely devoted to their welfare state. I turns out, even the Austrians aren't very Austrian."
