Jack Welsh’s on the Economy: Past the Point of No Return title describes how I have thought about monetary policy after I picked up on the Austrian Business Cycle Theory (his piece is a must read). We have gotten so out of control with credit expansion, by every measure, that I fear the consequences of unwinding it. Again, think of the last pargraph of chapter 23 of Hazlitt’s Economics in One Lesson.
“Like every other tax, inflation acts to determine the individual and business policies we are all forced to follow. It discourages all prudence and thrift. It encourages squandering, gambling, reckless waste of all kinds. It often makes it more profitable to speculate than to produce. It tears apart the whole fabric of stable economic relationships. Its inexcusable injustices drive men toward desperate remedies. It plants the seeds of fascism and communism. It leads men to demand totalitarian controls. It ends invariably in bitter disillusion and collapse.”
MisesBeliever Federal Reserve business cycle, credit, economics in one lesson, Hazlitt, monetary policy
As I prepared for my lesson on the Great Depression this semester, I turned to our textbook and read the following (this is not a joke):
“Why did the country sink further into depression [after the stock market crash]? Farmers and coal workers had suffered all through the 1920s from low prices, and the farmers were the first group in the 1930s to plunge into depression. But other economic sectors also lurched out of balance. Two percent of the population received about 28 percent of the national income, but the lower 60 percent got only 24 percent. Businesses increased profits while holding down wages and the prices of raw materials. This pattern depressed purchasing power. Workers, like farmers, did not have the money to buy the goods they helped to produce.”
Hmmm. After dismissing plans to systemically remove this section from the textbook of every student, I put together a very brief overview of the Austrian business cycle and presented this version to the students as my lecture on the subject.
As juniors in high school, most of my students are economic novices. That is to say, both explanations were drawn onto a tabula rasa. The overwhelming comment from my classes centered on two stark realities: 1) “we’ve already discussed similar economic downturns previously and this one sounded very similar” (ergo why didn’t we learn); 2) “this sounds a lot like toda” (ergo why didn’t we learn). Ironically, Mises had a daily article yesterday about the economic downturn in 1819, following a similar theme.
Generally, the Austrian theory appealed to most students. As we move into the New Deal, most students will struggle with the idea that the government cannot be a savior. As our textbook will trump the various New Deal program up, I will balance it with Hazlitt’s first chapter (the lesson).
Teacherman History austrian theory, business cycle, great depression, Hazlitt, new deal
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