<P>... austere and puritanical souls (who) regard (the Great Depression)... as an inevitable and a desirable nemesis on so much "overexpansion" as they call it...It would, they feel, be a victory for the mammon of unrighteousness if so much prosperity was not subsequently balanced by universal bankruptcy . We need, they say, what they politely call a' prolonged liquidation' to put us right . The liquidation, they tell us, is not yet complete . But in time it will be . And when sufficient time has elapsed for the completion of the liquidation, all will be well with us again...</P> <P> Milton Friedman stated that at the University of Chicago such "dangerous nonsense" was never taught and that he understood why at Harvard--where such nonsense was taught--bright young economists rejected their teachers' macroeconomics, and become Keynesians . He wrote: </P> <P> I think the Austrian business - cycle theory has done the world a great deal of harm . If you go back to the 1930s, which is a key point, here you had the Austrians sitting in London, Hayek and Lionel Robbins, and saying you just have to let the bottom drop out of the world . You've just got to let it cure itself . You can't do anything about it . You will only make it worse....I think by encouraging that kind of do - nothing policy both in Britain and in the United States, they did harm . </P> <P> Economist Lawrence White, while acknowledging that Hayek and Robbins did not actively oppose the deflationary policy of the early 1930s, nevertheless challenges the argument of Milton Friedman, J. Bradford DeLong et al. that Hayek was a proponent of liquidationism . White argues that the business cycle theory of Hayek and Robbins (which later developed into Austrian business cycle theory in its present - day form) was actually not consistent with a monetary policy which permitted a severe contraction of the money supply . Nevertheless, White says that at the time of the Great Depression Hayek "expressed ambivalence about the shrinking nomimal income and sharp deflation in 1929--32". In a talk in 1975, Hayek admitted the mistake he made over forty years earlier in not opposing the Central Bank's deflationary policy and stated the reason why he had been "ambivalent": "At that time I believed that a process of deflation of some short duration might break the rigidity of wages which I thought was incompatible with a functioning economy ." 1979 Hayek strongly criticized the Fed's contractionary monetary policy early in the Depression and its failure to offer banks liquidity: </P>

What was the most important factor contributing to the worldwide the great depression and why