5. The Business Cycle

There are some in the U.S. Congress who are knowledgeable and enthusiastic about socialism, and who fight for it as tenaciously as I fight for the free market. But their numbers are few. For the most part, the Members are well-intentioned, ostensibly pragmatic do-gooders—“pragmatic” enough to latch on to the interventionism most beneficial to their particular political needs and to provide an intellectual defense. Whether Keynesians, supply-siders, or monetarists, there is always an explanation for deficits, taxes, central banks, fiat money, inflation, and all flavors of interventionism. Yet the bulk of the Members remain well-intentioned, but, by their compromises, seriously misled. Actually, compromise becomes a “beneficial philosophy” in itself. If one does not compromise, he becomes “rigid,” “sterile,” “impractical,” “egotistical,” “ideological,” and “ineffectual.” Politics becomes the art of compromise. Yet with closer scrutiny, it’s easily seen that it is the compromisers who are rigid, sterile, impractical, ideological, and egotistical in their defense of the very dangerous system of interventionism and inflation.

It is rare in Washington for anyone to be accused of deliberately hurting the poor. No one deliberately creates unemployment. No one likes high interest rates, rising prices, or a falling standard of living. They all claim they know how to prevent suffering brought on by the business cycle—yet nearly all accept the proposition that the cycle comes out of uncontrolled capitalism. Since only a handful ever studied Mises’s superb explanation of how government monetary policy creates the cycle, only foolish, political solutions are offered. Even monetarism offers no help, since commodity money is condemned and the subjective theory of value rejected.

It’s tragic to watch, day after day, the flow of statist solutions from both parties in Washington while knowing the answers are readily available if our current leaders would only open their eyes, reject demagogues, and restore order with a sound monetary system and a free-market economy.

I found Rothbard’s and Sennholz’s Austrian explanation of the Great Depression truly eye-opening. Convinced of the cause of the Depression both from the theoretical (Mises) and the more practical (Rothbard and Sennholz) viewpoint, I became more determined than ever to work for a sound monetary system—without a central bank or political (paper) money. All people concerned with the suffering and degradation of unemployment should study the Austrian explanation of how distorted interest rates, malinvestment, skewed economic calculation, and preferential treatment for favored business and government constituencies, cause the crime of the business cycle.

Politicians are easily misled and conveniently tempted by the boom phase of the cycle. As Mises points out:

[t]hus it conclusively proved that the slump, whose appearance the inflationists attributed to an insufficiency of the supply of money, is on the contrary the necessary outcome of attempts to remove such an alleged scarcity of money through credit expansion. . . . This demonstration could appeal to statesmen intent on promoting the enduring well-being of their nation. It could not influence demagogues who care for nothing but success in the impending election campaign and are not in the least troubled about what will happen the day after tomorrow.⁹

Obviously one cannot deal in politics without being aware of human nature and how interventionism attracts demagogues. Refuting the demagogues who prate about their great skills during the boom, and shout louder and louder for statism as the busts get more severe with each cycle, seems an overwhelming task. It is easy to see that many economic “recoveries” are nothing but more of the same—spending and inflating our way into a new cycle, hoping for yet another boom, which may or may not materialize. Eventually, the deceitful trick of inflation will fail to create “prosperity?” When that time comes, due to the sustained period of inflation that we have endured, we can expect a serious political and economic crisis for Western civilization. The incantations of supply-sidism, monetarism, or Keynesianism will not suffice, and the fascist and socialist voices of oppression will grow louder and more influential.