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11: AUSTRIANS vs.

KEYNESIANS

onditions during the Great Depression were
Cfertile ground for the ideas of John M. Key-
nes and demand management economics and paved the
way for a broader role of the federal government and
the Federal Reserve. After the Employment Act of 1946
empowered the federal government to pursue maximum
employment, and after Congress cemented this
commitment with the Humphrey-Hawkins Act in 1978
which mandated the Fed to seek full employment and
stable prices, the government fully embraced the ideas
of Keynesian economics. Keynesians believe that with
proper econometric models, the government can make
wise decisions and moderate the swings of the business
cycle with monetary and fiscal policies.
Keynesians believe the Humphrey-Hawkins Act
strengthened the Full Employment Act of 1946, while
Austrians postulate it weakened government’s role by
imposing impossible mandates on the Federal Reserve.
The Fed will increase the money supply during periods

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