Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

454 Money, Bank Credit, and Economic Cycleseconomic policy, and its answer must depend on a correctevaluation of the severity of each particular set of circumstances.Although theory suggests that any policy which consistsof an artificial increase in consumption, in public spendingand in credit expansion is counterproductive, no onedenies that, in the short run, it is possible to absorb any volumeof unemployment by simply raising public spending orcredit expansion, albeit at the cost of interrupting the readjustmentprocess and aggravating the eventual recession.Nonetheless Hayek himself admitted that, under certain circumstances,a situation might become so desperate that politicallythe only remaining option would be to intervene again,which is like giving a drink to a man with a hangover. In 1939Hayek made the following related comments:it has, of course, never been denied that employment can berapidly increased, and a position of “full employment”achieved in the shortest possible time by means of monetaryexpansion. . . . All that has been contended is that the kindof full employment which can be created in this way isinherently unstable, and that to create employment by thesemeans is to perpetuate fluctuations. There may be desperatesituations in which it may indeed be necessary to increaseemployment at all costs, even if it be only for a shortperiod—perhaps the situation in which Dr. Brüning foundhimself in Germany in 1932 was such a situation in whichdesperate means would have been justified. But the economistshould not conceal the fact that to aim at the maximumof employment which can be achieved in the short run bymeans of monetary policy is essentially the policy of thedesperado who has nothing to lose and everything to gainfrom a short breathing space. 5252 Hayek, Profits, Interest and Investment, footnote 1 on pp. 63–64. Hayeklater amplified his ideas on the subject, indicating that in the thirties hewas opposed to Germany’s expansionary policy and even wrote an articlethat he never actually published. He sent the article to ProfessorRöpke with a personal note in which he stated the following:Apart from political considerations I feel you ought not—notyet at least—to start expanding credit. But if the political situationis so serious that continuing unemployment would