🚀 go-pugleaf

>_Why_ business cycles happen is perhaps the biggest open question in
>economics today, and has been since at least the turn of the century.
>No professional economist of whom I am aware considers the question of
>causality for business cycles to be a closed topic.  This is an area
>of great controversy and very active research within the profession,
>so it should come as no surprise that there is so much controversy and
>confusion about it among the general population.  The available data
>are inconclusive enough to support many opposing viewpoints.

Anyone here heard of Ludwig von Mises? His theory of the business cycle
seems to be the only one which holds water:

  Government inflation of the money supply causes the boom, and
  when the inflation is ceased the recession occurs.

1) In 1860, Lincoln ok'd the printing of $400 million dollars of greenbacks
   to help finance the civil war. I believe the largest boom was in the farming
   industry. When the country went back on the gold standard, there was
   a recession at least in the farming industry (I wish I had more details
   here.)

2) During the 20's the Federal Reserve, designed to prevent the business
   cycle (ha!) inflated the money supply by approximately 68% (by lowering the
   reserve requirements on gold), financing  the overspeculation so often 
   blamed for the depression. When the inflation ceased and the panic occured,
   those businesses artificially buoyed by the inflation went under.

3) During the 1980's the Federal reserve increased the money supply from
   $400 billion to $800 billion. When the inflation stopped accelerating, 
   we entered this current recession. For the boom to continue under inflation,
   the growth in the money supply must acclerate, not remain constant.

The interesting thing about inflation is that if it were merely stopped,
the economy would get going again on its own. The recession is actually 
the GOOD part of the business cycle because during the recession the 
market realigns itself, correcting the malinvestments caused by inflation.
Our government officals cannot seem to resist temptation, however.

The Fed just recently cut interest rates again, insuring that the ten-dollar
bill you have in your wallet will be worth less tomorrow.

Another interesting thing about inflation is that is redistributes goods
and services from the consumers to the government. When the government buys
goods and services with freshly printed money--it gets them for the current
price. However, once this money is put into circulation, prices rise, and
the dollar for everyone else becomes worth less.

Cool, huh?

Jim Hranicky (jfh@reef.cis.ufl.edu)

c.f. 	"Human Action," by Ludwig von Mises
     	"Economics in One Lesson," by Henry Hazlitt
	"America's Great Depression," by Murray N. Rothbard