Some thinking on the explanations about the Great Depression by Keynes and Hayek

This is some thinking when I am reading the book "Keynes: the return of the Master" by Robert Skidelsky these days.

On Page 67-68, it mentioned the different option when explaining the Great Depression by Keynes and Hayek.
"As a matter of fact, both Keynes and Hayek tho ught a big crash was likely in 1928-9, though for completely opposite reasons: Hayek because interest rates were too low, Keynes because they were too high ...."

It sounds to me that the argument/different opinion between Hayek's idea (low interest and cheap money to make bubble) and Keynes' idea (high interest, insufficient money supply makes business depression which makes a big amount money goes into stock market) is the different thinking in the direction where money will/would automatically go.

If money prefer stock market than the real business, which seems like what Hayek is saying, big money supply will cause bubble in stock market; whereas, if money would choose to go to the real business first, which seems like what Keynes is saying, lack of money supply will make business depressed, then lead money to go to other market (stock market) with higher return (comparing to the depressed real business field).

To me, it is unfair to judge who is right or wrong because both Hayek's and Keynes's explanation on the Great Depression may be a profile of facts during a certain period of the Great Depression.

As Hayek says, cheap money makes bubble in the market, but if the government increase the interest rate, then as Keynes says, it will harm the real business, which then, as Keynes' reasoning on depression, will lead to another depression of real business. However, which I feel it interesting logically, if the government still keeps money cheap, the stock market bubble will explode, which results in a depression as well, but first depression in stock market then to the other type of market.

Therefore, it relies on the assumption on the direction money prefer to go, or the way people would like to invest more. If people, in a certain time period or under certain political/social environment, like to get "quick and smart" money more, they probably will invest their money to the stock market. Then, under this scenario, Hayek probably is right as lowering interest rate can only blows the bubble, money will not go to the real business market. On the opposite, if people think they can get profit from real business market quicker, they will put their investment mostly in the real business. Then when the government lowers the interest rate, the real business will boom. This scenario supports Keynes' reason.

It may be possible in some period of economic flow, people prefer to invest the stock market or financial market, while at the other period, more money goes to the real business. The main idea of Keynes and Hayek's explanation on the depression should be the same; that is, the inefficient allocation of money or resource makes the economic slump. Therefore, I think, no matter in a form of printing more money or more active government behavior on the market, external (to the market adjustment per se) force should be applied. And it depends on the social and political structure/environment to decide which way or combination of two ways is a better solution to the nation's economy.