Archive for the 'Great Depression' Category

Clarifications of the Austro-Wicksellian Business Cycle Theory

December 31, 2012

by Mario Rizzo

There has been a lively debate on forecasts of high inflation made by those worried about the Fed’s recent policy of quantitative easing. For details I refer the reader to Daniel Kuehn’s excellent blog. The question to which I address myself is solely “What do these predictions have to do with core Austrian Business Cycle Theory?” This is my answer.

We must start with a few general points. First, I am talking about the Austro-Wicksellian business cycle theory as developed by Friedrich Hayek and Ludwig von Mises and as synthesized by Roger Garrison in his book Time and Money. I cannot take responsibility for versions constructed by others.  It is not that I think the others are necessarily wrong (and I mean no disrespect to them), but I do not know with sufficient precision what all these others are saying in the name of “Austrian theory.”

Secondly, the Austro-Wicksellian theory begins with either an endogenous increase in credit through the banking system or with an “exogenous” increase initiated by a central bank. In the latter case, however, the theory itself has little to say about the extent to which increases in base money will manifest themselves in increases in bank credit to producers.  (This may not be much of an issue during a boom but may be an issue during a recession or in a recovery.)

Third, the theory is fundamentally one about the “upper turning point” in the cycle – it is a theory about why a credit-induced boom must come to an end. It is not a theory, for better or worse, about the “secondary” factors that develop consequent on the break-up of the boom. These include possible recessionary-problems relating to bank runs (there is an Austrian inspired banking literature, but that is not the cycle theory) or what exactly will get investment expectations to turn around.  As to deflation, Lawrence White has argued that the logic of the theory requires the avoidance of deflation in accordance with Hayek’s very early recommendation to keep M V from falling.  (Hayek departed from this in the Depression, and later admitted he was incorrect to do so.)

Now to more specific points:   Read the rest of this entry »

Thanksgivings Past

November 24, 2010

by Chidem Kurdas

Thanksgiving was originally a spontaneous celebration. Over time it grew into a social custom. It did not become an official holiday until Lincoln issued a Thanksgiving proclamation in 1863. Then in 1939 Franklin D. Roosevelt moved the date. Read the rest of this entry »

The Second Austrian Moment

September 18, 2010

by Mario Rizzo  

This is an important time for Austrians. During the Great Depression and for many years thereafter, J.M. Keynes and his followers dominated macroeconomic theory (some say they created it) as well as the conventional wisdom about the historical lessons of the Depression and the New Deal.  

We are now witnessing many important developments that will affect economics and public perceptions for a long time to come. Read the rest of this entry »

Keynes on Confidence

July 13, 2010

by Jerry O’Driscoll  

Amity Shlaes has written an enlightening op ed on “FDR, Obama and ‘Confidence’” in today’s Wall Street Journal. She details how FDR destroyed investor confidence in the 1930s by his incessant attacks on business and businessmen, and by his policy inconsistency.

Treasury Secretary Morgenthau at first served as FDRs “yes” man and cheerleader.  But he came to realize how destabilizing FDRs actions were. The Treasury Secretary began resisting his boss’s policies.  She writes that Morgenthau “found an unlikely supporter” in John Maynard Keynes. Keynes wrote a critical letter to FDR about his persecution of utilities. “What’s the object of chasing them around the lot every other week?”

Market confidence returned when FDR concluded he needed to make allies of business once he decided he needed to plan for war. She concludes: “Perhaps Mr. Geithner might like to read up on Morgenthau’s progress.  Treasury secretaries who forget the past condemn us all to repeat it.”

Still Hearing Defunct Economists in the Air: Krugman’s Misplaced Attack on Hayek

July 10, 2010
by Richard Ebeling* 

On July 9th, Nobel economist and New York Times columnist, Paul Krugman, gave his read on the recently unearthed letters between J. M. Keynes and F. A. Hayek in the London Times in October 1932, which have been posted and discussed on ThinkMarkets. (and in the Wall Street Journal).

Krugman insists that Hayek is worse than he thought and that Keynes was better than he imagined. He attacks Hayek for insisting that the best cure for recovering from the Great Depression would be to free up markets both domestically and internationally, and to rein in government spending. This, Hayek said, would create the political and fiscal environment that would foster a positive private sector return to a job generating rebalancing of supply and demand, and a sustainable investment climate.

Not surprisingly, Krugman instead, hails Keynes as the advocate of fiscal stimulus that would “prime the pump” through deficit spending and government sponsored job creation.

He thinks it is all a great tragedy that the same battle has to be fought all over again for sound Keynesian policies, nearly eighty years after the exchange of these letters. But what, instead, is Krugman missing? Read the rest of this entry »

Keynes versus Hayek: Past is Prologue

June 30, 2010

KEYNES HAYEK 1932 Cambridge vs.LSE

by Mario Rizzo  

My friend economist Richard Ebeling has discovered two extremely important letters. (Click the link above.)

In 1932 before John Maynard Keynes’s General Theory was written, these letters appeared in The Times of London regarding the appropriate economic policies for Britain to follow during the slump.  

There are a number of things that catch the eye. Read the rest of this entry »

Paul Krugman, Ipse Dixit 2

June 29, 2010

by Mario Rizzo  

Some time ago I wrote a post with this name.  

Now Paul Krugman is at it again with his ex-cathedra pronouncements. He says that because of the recent planned move by European countries in the direction of austerity and the talk in the US about austerity, we are on the verge on a “third” great depression in American history. 

It is hard to know how to respond. Krugman has no evidence. Read the rest of this entry »

Get Real about Jobs

December 3, 2009

by Chidem Kurdas

Today President Obama is holding a jobs summit, with the professed goal of soliciting ideas to encourage businesses to hire. Short-term tax credits for employers are among the measures mentioned.

Yesterday here on ThinkMarkets Mario Rizzo pointed to the distorting impact of such proposals and cited Gary Becker’s argument that cutting income taxes is a better way to stimulate employment.  There is another type of distortion – related to the highly informative back and forth by Jerry O’Driscoll and Roger Koppl on Mario’s post – that should be spelled out. Even as the economy recovers, government-created uncertainty is going to discourage hiring. Read the rest of this entry »

What Ended The Great Recession?

May 29, 2009

by Mario Rizzo  

Some business forecasters with a not-too-bad record are predicting that the recession will be over by the end of the year.  (NBER dates the beginning to December 2007.)  

Of course, the recovery in terms of real output from the Great Depression began in the 3Q of 1933 and that did not preclude high unemployment rates and a further recession in 1937. Here. Let that pass for the moment. 

If recovery begins, the discussion about why will also begin. Let’s confine ourselves to evaluating policies designed by the government to produce recovery. Read the rest of this entry »

Regime Uncertainty During The Great Depression

April 12, 2009

by Mario Rizzo

 

The destabilizing “regime uncertainty” that has been analyzed by the economist Robert Higgs was already seen after the first few years of FDR’s administration by one of its most influential members, Raymond Moley.

 

He had been an economic advisor to Governor Alfred E. Smith of New York. He was a conservative Democrat who quit the administration in mid-1936 because he thought it was moving too far to the left.  

 

What Roosevelt and others saw as an “experimental” or “pragmatic” turn was, in reality, a confusing and destabilizing mix of ill thought-out policies and rhetoric. Read the rest of this entry »

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