King Banaian’s post at Liberty&Power presents a caricature of Austrian Business Cycle Theory that neither the quiz nor any Austrian could embrace. He writes that he is “unpersuaded that the length and severity of the Depression was due to wildly overexpansionary monetary policies in the 1920s.” The quiz question number 16 makes no such claim. Instead, it says: “The stock market crash of 1929 represented the most visible sign of a necessary correction in an economy artificially inflated by expansionary monetary policy. Instead of permitting liquidation, Hoover attempted to resuscitate the economy through interventionist measures, including protectionism, which only drove the economy further into depression. FDR built on this record and embarked on a disastrous course of central planning, which ended up saddling the US economy with bureaucracy and wage and price controls.”
Writing in 1931, Mises already saw that monetary policy alone could not explain the depth of the depression: “The unprofitability of many branches of production and the unemployment of a sizeable portion of the workers can obviously not be due to the slowdown in business alone. Both the unprofitability and the unemployment are being intensified right now by the general depression. However, in this postwar period, they have become lasting phenomena which do not disappear entirely even in the upswing. We are confronted here with a new problem, one that cannot be answered by the theory of cyclical changes alone.ady recognized that the severity of the depression was due to more than monetary policy.” In this essay, he goes on to discuss the many interventions that were forestalling recovery.
