Mises on the Business Cycle

Mises on the Business Cycle
August 21, 2011 by Dennis Sperduto



The economic and financial events of the last few weeks indicate that the economies of the United States and most of Europe remain quite weak, if not in outright recession. This situation comes after unprecedented fiscal and monetary “stimuli” by many governments that were strongly supported and recommended by the large majority of the economics profession, media commentators, and politicians. And of course, with economic conditions showing renewed weakness, the mainstream calls for additional stimuli of even larger magnitudes. The mainstream is unable or unwilling to abandon its Keynesian foundation, a system of thought that has been shown by many individuals associated with the Austrian School to be one of the great retrogressions in scientific economic thought in modern times.

Given current economic conditions, it is especially worthwhile to reexamine “The Causes of the Economic Crisis,” the title of which comes from an address delivered by Ludwig von Mises in February 1931 in central Europe. The cogency and logic of Mises’s argument is in stark contrast to the Keynesian analysis supported by almost the entire mainstream economics profession. How far the mainstream has to travel to reach the level of understanding that Mises possessed in 1931 is amazing and deeply troubling, and indicative of a profession approaching intellectual bankruptcy. And the vast majority of politicians remain what they have generally always been: liars, thieves, and murderers, driven by a desire to control other individuals and their property through coercion. Reproduced below are a few of the last paragraphs of Mises’s 1931 address.

The severe convulsions of the economy are the inevitable result of policies which hamper market activity, the regulator of capitalistic production. If everything possible is done to prevent the market from fulfilling its function of bringing supply and demand into balance, it should come as no surprise that a serious disproportionality between supply and demand persists, that commodities remain unsold, factories stand idle, many millions are unemployed, destitution and misery are growing and that finally, in the wake of all these, destructive radicalism is rampant in politics.

The periodically returning crises of cyclical changes in business conditions are the effect of attempts, undertaken repeatedly, to underbid the interest rates which develop on the unhampered market. These attempts to underbid unhampered market interest rates are made through the intervention of banking policy—by credit expansion through the additional creation of uncovered notes and checking deposits—in order to bring about a boom. The crisis under which we are now suffering is of this type, too. However, it goes beyond the typical business cycle depression, not only in scale but also in character—because the interventions with market processes which evoked the crisis were not limited only to influencing the rate of interest. The interventions have directly affected wage rates and commodity prices, too.

And

All attempts to emerge from the crisis by new interventionist measures are completely misguided. There is only one way out of the crisis: Forgo every attempt to prevent the impact of market prices on production. Give up the pursuit of policies which seek to establish interest rates, wage rates and commodity prices different from those the market indicates. This may contradict the prevailing view. It certainly is not popular. Today all governments and political parties have full confidence in interventionism and it is not likely that they will abandon their program. However, it is perhaps not too optimistic to assume that those governments and parties whose policies have led to this crisis will some day disappear from the stage and make way for men whose economic program leads, not to destruction and chaos, but to economic development and progress.

http://blog.mises.org/18157/mises-on-the-business-cycle/