Thread by @lawrencehwhite1

Paul Krugman is not a historian of economic thought; he only role-plays one in his NYT opinion column. He has never understood the Austrian / Hayekian theory of the business cycle, so he thinks that it couldn't have been a serious rival to Keynes’s theory in the 1930s. But
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JR Hicks was there, and wrote in his 1967 essay “The Hayek Story”:
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Krugman thinks “This [Austrian] view had logical problems: If transferring resources out of investment goods causes mass unemployment, why didn’t the same thing happen when resources were being transferred in and away from other industries?” PK’s puzzle comes from his
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neglecting the macro context. The latter transfer is driven by loose monetary policy that drives the economy temporarily outside the LR ppf. By contrast, the collapse of the boom is accompanied by a “secondary contraction” that pulls the economy inside the ppf.
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Krugman claims that “Hayek and Schumpeter were adamantly against any attempt to fight the Great Depression with monetary and fiscal stimulus.” Hayek thought “fiscal stimulus” a waste, yes. But in the fourth lecture of _Prices and Production_ he favored monetary expansion
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in cases of slumping velocity. He called for stabilizing nominal income in a closed economy to avoid slumps due to an unsatisfied excess demand for money. See my article here: ideas.repec.org/a/mcb/jmoncb/v…

Krugman's NYT opinion column is here: static.nytimes.com/email-content/…
For a very helpful account of the Austrian theory incorporating the economy's production possibilities frontier, see Roger Garrison here: webhome.auburn.edu/~garriro/strig…

For more on the Hayek-Keynes debate, and more rebuttals to Paul Krugman's claims about the history of economics, see my book The Clash of Economic Ideas. amazon.com/Clash-Economic…