“I shall always regard this aspect of my dispute with Keynes as the greatest mistake of my professional career, and the book, The Great Depression, which I subsequently wrote, partly in justification of this attitude, as something which I would willingly see be forgotten.” (Robbins 1971: 154).The Austrians make much of the success that Hayek gained at the London School of Economics (LSE) in the early 1930s with his business cycle theory, but pay less attention to the fact that the leading supporter of Hayek there repudiated the theory.
Robbins made this now famous statement:
“Now I still think that there is much in this theory as an explanation of a possible generation of boom and crisis. But, as an explanation of what was going on in the early ’30s, I now think it was misleading. Whatever the genetic factors of the pre-1929 boom, their sequelae, in the sense of inappropriate investments fostered by wrong expectations, were completely swamped by vast deflationary forces sweeping away all those elements of constancy in the situation which otherwise might have provided a framework for an explanation in my terms. The theory was inadequate to the facts. Nor was this approach any more adequate as a guide to policy. Confronted with the freezing deflation of those days, the idea that the prime essential was the writing down of mistaken investments and the easing of capital markets by fostering the disposition to save and reducing the pressure on consumption was completely inappropriate.
To treat what developed subsequently in the way which I then thought valid was as unsuitable as denying blankets and stimulants to a drunk who has fallen into an icy pond, on the ground that his original trouble was overheating.” (Robbins 1971: 154).
Robbins, Lionel. 1971. Autobiography of an Economist. Macmillan, London.