Vienas life in coffee houses, informal seminars for discussion and

arguing.
Hayek joined Vanmeses semenars. Austrian school of though
markets work and governments dont. New Soviet socialism will not
succeed because government controls the prices and wages.
Free markets do it best.
Lennons new economic policy farmers can buy and sell land and can
land produce
Commanding heights of the economy controlled by the government.
Lennon died within a year. In less than 30 years 1/3 or world lived in
Lennons idea of Maxism. Stallin introduced central planning.
Capitalism looked to be doomed in 20s. Germany and Austria were
paying for the war losses. More money printed and resulted in hyper
inflation.
Hyper inflation wiped out the savings of the middle class. Most people
supported Nazis as they had lost everything.
1920s was a boom time in American cities. People were buying
stocks. Black Thursday oct 29, 1929 the great depression
started.
1930s it was despair with no ability earn, invest, or consume.
They withdrew the savings. Half the banks closed.
15 million people unemployed.
With failure of capitalism, fascism took wind.
Hayek wrote macro economics and analyzed why capitalism
failed.
Potential collapse of democratic government, was one of his
focuses.
Kanes had to come up with an answer. Roosevelt was facing a
difficult challenge as a president. Roosevelts new deal
introduced building highways, damns, and national park. Also
regulating capitalism.
He regulated capitalism. Industry became subject to many rules
and regulations. Started setting prices
1936 Kanes published his general theory on how to fight the
depression and became the most influential economist.
Governments should spend against the wind and at hard times
put the purchasing power in the hands of citizens.
Harvard university had become his home and established his
school of general theory and he influenced Washingtons
decisions.
World war II made it possible for Kantianism to become
government policy.
He believed that what worked in war will work in peace.

1944: Hayek feared that Kanes work was a big step towards the
wrong direction. The road to serfdom: too much government
planning means too much government power and it destroys
freedom and makes people slaves.
He rejected macro economics and rejected any government
interventions even in great depression.
In the battle of ideas Hayek was on the losing.
Kanes attended a gathering to organize the post war economy.
World bank and IMF were formed. Kanes idealism and humanity
was plausible.
1945: war was over. Final allies meeting was in Berlin between
Germany, GB and USSR. Tremendous loss in the faith of maket
economy.
1945 troops in Britain came home to a general election. During
war socialist party was in government.
Churchill opposed government over regulation. GB elected a
socialist government and Churchill was out.
Private owners were compelled to sell their businesses. Labor
created a mixed economy and national industries co-existed with
enterprises. Welfare provided health insurance and full benefits.
Russia was a military and economic giant. Scientific socialism
ended fascism. Capitalism and free market was in loosing. Cold
war had begul 1947.
Hayek was all about freedom and he saw socialist ideas as a
threat to freedom. Milton Chicago was on of the participants of
his gathering. Hayek: Democracy is impossible with free
economy.
The strength of socialist is to have the courage to dream big.
Hayek prevented a long battle of ideas.
Germany was left falling apart economically. West Germanys
currency was worthless. Ludwig Airhard was a free market
economist who was a follower of Hayek, he was the finance
minister of Germany.
New currency was introduced in Germany. Airhard without
permission went on radio and gave up all the price control. GB
was not happy and wanted Airhard to answer and he said I
havent changed the pricing control, I have abolished them.
The market started working and everything that was hidden for
10 years came to counters for sale. Germany also provided a
good social program.
German modern economy took over Britains planned economy.
India celebrated its freedom. Gandhi wanted a simple india with
self sufficient villigers. Nehru wanted to state led economy like
that of Russia. Public sector took over the commanding heights.

Nehru put his faith in technology. He wanted to apply science

and technology. Central planning a form of science. Mahanavis
model became very influential in mixed industry countries and
India was leading as a model. Africa and South America
government chose the state control because of success of Russia
and china.
By 1950 Hayeks economic model was so out of context that only
University of Chicago accepted to give him a job. Chicago stood
out as a blunt and straight forward place. Milton Freedman was a
spokesman for Chicago School of Thought which advocated for
little government control.
Hayek felt at home in Chicago and was in a good position to
collaborate with his colleagues. In Washington Kane was still
influential. Kennedy received a degree from Yake. The battle of
ideas was over. Kanes was his way of doing government. Speech
suggested that Kanes economic model was going to be used as
the main government policy.
1970 Austria: Hayek moved back to Austria and was depressed
(success of missed economies and loss of free market) and no
body seemed to care about him and agree with him. Academic
world shunned his ideas. Economists treated him like an outsider.
Hayek read how inflation and unemployment raised at the same
time.
1971 US: American economy was in trouble and was not growing.
There was inflation and stagflation. Stagnation in the economy
(high level of unemployment) and inflation.
President Nickson was president, Milton Freedman was advisor.
He started spending more government money.
Nickson announced now I am a Kensian. Camp David for a
working weekend.
Dick Chenni was working with the president on the price control
or the rack of it.
Nicksons new economic policy: war on crisis and he was reelected. Economy didnt do so well. Prices kept on rising. George
Schultz was working with Nickson on the price control.
Britain was going through the same thing. They used wage and
price control. In Britain the coal minors collapsed the economy.
Institute of Economic Affairs set up the Hayek in 1957 served as
a source of free market in Britain making a case for capitalism.
Joseph revived free market discussion in Universities. More risk
taking, more inequality and more bankrupts.
Margaret Thatcher was greatly influenced by Keith Joseph.
1974 world started to going Hayeks way. Hayek won the Nobel
Prize. US economy was not doing great. Prices were still rising.

Chicago believed that regulation restricted competition and led

to inflation. De-regulation started happening.
Jimmy Carter brought Khan to deregulate the air transport
department. Demand increased, prices went down. Stage set for
de-regulation of the US economy.
1979 Britain: everyone was in strike. People voted for new
conservative government, Margaret Thatcher. Hayeks theory
was to be practiced in Britain. Squeezed government spending.
Britain was very divided.
1979 US: Carter was under stress, Irans revolution caused more
stress on oil. Kanes way of spending more to get out of inflation
was not working.
Paul Volker made chair of federal reserve; Volker believed
inflation was an evil economic disease. Volcker tightened the
money supply and economy went nose down.
Regan was a follower or Hayek and he was elected as president.
Regan: if not now, when? If not us, who?
Volcker was supported by Regan as he further tightened the
money supply. Unemployment reached 10%. 1982 inflation was
going away in the US. Regan and Volcker had set US on a new
economic course: Four key elements: sound money,
deregulation, modest tax rates, limited government spending.
Regans tax cuts increased the deficit but the economy started
growing. 1983 on, the economy started growing.
1982: Britain went to war against Argentina to take back Folkland
Islands. Victory in the war ensured her government, which
enabled her to continue implementing her economic policy.
Coal miners were a challenge to Thatchers policy. Less than
3000 people work in mines, compared to 180,000 before the
strikes. The government put the commanding height up for sale.
Shares of these industries sold off to the private sector. In Britain,
the battle was over.

The Capitalist Threat:

Open society is the set of institutions that protect the right of citizens
and ensure freedom of speech and choice.

Thanks to everyone for helping us understand the overall impact of

inflation in different countries and sharing their valuable experiences. I
wont go to repeat what is already said in terms of negative effects of
hyperinflation and how it destroys economies; instead, I will focus on
some positive aspects of inflation. With this post, I intend to shed some
light on deflation and how some level of inflation is good for the
economy. My observations are mainly influenced from Delongs article.
By default, we tend to equate inflation to something negative;
however, here are a few reasons why inflation could be positive:
Interest rate: Inflation helps keep nominal interest rates above
zero. It also keeps a balance of wealth between creditors and
debtors by encouraging borrowers to invest now and thus
resulting in a flow of investment and wealth generation cycle. If
inflation is not expected, it brings down the interest rates low
and hence takes away wealth from creditors and shifts it to
debtors. This will ultimately result in stagnation.
Cash flow in the economy: Inflation generally results in price
increases; people are generally motivated to purchase something
today than later because the prices are going to increase. This
increases the demand and hence suppliers are encouraged to
produce more. The equilibrium is achieved when this supply
meets the demand. If inflation is not expected, people would
tend to delay purchases and hence there will be a slow
movement of cash in the economy.
Low inflation will decrease employment: The decrease in demand
resulting from a slow cash flow results in a decrease in
employment. Deflation lowers the demand, depresses
investment and raises unemployment resulting in a halt in the
economy. 1 (J n.d.)
I would be happy to hear others opinions on how they think inflation
could be positive.

1 J, Bradford Delong. "Shoul we Fear Deflation? / Comment and

Discussion." Brookings Papers on Economic Activity no. 1 (1999): 225252,
http://search.proquest.com.ezproxy.library.tufts.edu/docview/21711363
2?accountid=14434 (accessed August 22, 2015).

cases) or majority of the population, is shared by critical numbers,

enough to fuel terrorism in most, if not all, of the Islamic countries. I
think political Islam in 21th and 21st century is going through, what
Christianity went through in the dark ages, and more and more people
are realizing that separation of religion is the best solution for the ever
changing politically sophisticated world. The relatively newer radical
groups, be id Al-Qaida or ISIL are forms in which the struggles manifest
themselves. These later parts are my opinions and I am open to
hearing others insights from their experiences or research on the
subject.