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

Additional Considerations on the Theory of the Business Cycle 455Now let us suppose politicians ignore the economist’s recommendationsand circumstances do not permit the liberalizationof the economy, and therefore unemployment becomeswidespread, the readjustment is never completed and theeconomy enters a phase of cumulative contraction. Furthermorelet us suppose it is politically impossible to take anyappropriate measure and the situation even threatens to endin a revolution. What type of monetary expansion would bethe least disturbing from an economic standpoint? In this casethe policy with the least damaging effects, though it wouldstill exert some very harmful ones on the economic system,would be the adoption of a program of public works whichwould give work to the unemployed at relatively reducedwages, so workers could later move on quickly to other moreprofitable and comfortable activities once circumstancesimproved. At any rate it would be important to refrain fromthe direct granting of loans to companies from the productivestages furthest from consumption. Thus a policy of governmentaid to the unemployed, in exchange for the actual completionof works of social value at low pay (in order to avoidproviding an incentive for workers to remain chronicallylead to a political revolution, please do not publish my article.That is a political consideration, however, the merits of whichI cannot judge from outside Germany but which you will beable to judge.Hayek concludes:Röpke’s reaction was not to publish the article, because hewas convinced that at that time the political danger ofincreasing unemployment was so great that he would risk thedanger of causing further misdirections by more inflation inthe hope of postponing the crisis; at that particular moment,this seemed to him politically necessary and I consequentlywithdrew my article. (F.A. Hayek, “The Campaign AgainstKeynesian Inflation,” chapter 13 of New Studies in Philosophy,Politics, Economics and the History of Ideas, p. 211)At any rate desperate measures such as this can only procure a briefrespite, while postponing the resolution of problems, which becomemuch more serious over time. Indeed despite Röpke’s consequentialistdecision, the situation in Germany continued to deteriorate and it wasimpossible to prevent Hitler’s accession to power in 1933.