It Is the Delay in this Adaptation of the Economy Due to Wage and Price Rigidities that Gives Rise to Secondary Deflation

Having thus disposed of the necessity of deflation, how then did, in Hayek’s view, a secondary deflation develop and what would have been an adequate policy response to it? Here the crucial element is the existence of wage and price rigidities:

There can be little question that these rigidities tend to delay the process of adaptation and that this will cause a ‘secondary’ deflation which at first will intensify the depression but ultimately will help to overcome these rigidities. 

From this passage (and similar ones) we can conclude that the remedying effect of the (primary) depression could be successfully fulfilled, were it not for the obstacle of rigid wages and prices. In turn, it is the delay in this adaptation of the economy due to rigidities that gives rise to secondary deflation. 

—Hansjoerg Klausinger, ed., editor’s introduction to The Collected Works of F. A. Hayek, vol. 8, Business Cycles, Part II, by F. A. Hayek (Carmel, IN: Liberty Fund, 2017), 9-10.