Economic Depressions: Their Cause and Cure

Here is the Austrian School’s opinion on Economic Depressions (causes and cures). The article also provides a very good historical analysis of depressions.

Article Introduction (Via Mises.org):

We live in a world of euphemism. Undertakers have become “morticians,” press agents are now “public relations counsellors” and janitors have all been transformed into “superintendents.” In every walk of life, plain facts have been wrapped in cloudy camouflage. No less has this been true of economics. In the old days, we used to suffer nearly periodic economic crises, the sudden onset of which was called a “panic,” and the lingering trough period after the panic was called “depression.”

Article Excerpts (Via Mises.org)

“The idea that increased government spending or easy money is “good for business” and that budget cuts or harder money is “bad” permeates even the most conservative newspapers and magazines.”

“The market economy, then, is a profit-and-loss economy, in which the acumen and ability of business entrepreneurs is gauged by the profits and losses they reap. The market economy, moreover, contains a built-in mechanism, a kind of natural selection, that ensures the survival and the flourishing of the superior forecaster and the weeding-out of the inferior ones. For the more profits reaped by the better forecasters, the greater become their business responsibilities, and the more they will have available to invest in the productive system. On the other hand, a few years of making losses will drive the poorer forecasters and entrepreneurs out of business altogether and push them into the ranks of salaried employees.”

“The Ricardian analysis of the business cycle went something as follows: The natural moneys emerging as such on the world free market are useful commodities, generally gold and silver. If money were confined simply to these commodities, then the economy would work in the aggregate as it does in particular markets: A smooth adjustment of supply and demand, and therefore no cycles of boom and bust.”

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07. October 2008 by Miguel Barbosa
Categories: Curated Readings, Finance & Investing | Leave a comment

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