"Contrary to what is widely believed, the crucial result of the 'Keynesian Revolution' is the general acceptance of a factual assumption and, what is more, of an assumption which becomes true as a result of its being generally accepted. The Keynesian theory, as it has developed during the last twenty years, has become a formal apparatus which may or may not be more convenient to deal with the facts than classical monetary theory; this is not our concern here. The decisive assumption on which Keynes's original argument rested and which has since ruled policy is that it is impossible ever to reduce the money wages of a substantial group of workers without causing extensive unemployment. The conclusion which Lord Keynes drew from this, and which the whole of his theoretical system was intended to justify, was that since money wages can in practice not be lowered, the adjustment necessary, whenever wages have become too high to allow , must be effected by the devious process of reducing the value of money. A society which accepts this is bound for a continuous process of inflation."
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Friedrich A. von Hayek, "Inflation Resulting from Downward Inflexibility of Wages," §15 of "Wage Rigidities and Inflation," ch. V of A Tiger by the Tail: The Keynesian Legacy of Inflation, compiled by Sudha R. Shenoy, 3rd. ed. (published jointly by The Institute of Economic Affairs and the Ludwig von Mises Institute, 2009), p. 68; essay originally published in Studies in Philosophy, Politics and Economics (Routledge, 1967), p. 295.
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