Booms and Busts

Crashes are fast, like that first hill on a coaster. Recoveries are not, for the simple reason that production is more difficult than destruction.

The latest installment in the Understanding Money Mechanics series summarizes the theory of the business cycle originally published in 1912 by Ludwig von Mises and elaborated by Friedrich Hayek.

Crashes are fast, like that first hill on a coaster. Recoveries are not, for the simple reason that production is more difficult than destruction.

In this crisis the money supply has already increased far more than during the last crisis. But it's hard to say when this will produce inflation because we're still in the midst of a demand shock and a collapse in oil prices.

In this crisis the money supply has already increased far more than during the last crisis. But it's hard to say when this will produce inflation because we're still in the midst of a demand shock and a collapse in oil prices.

The current bust has been made worse by previous periods of easy money, which destroyed the wealth creation that is critical to sustaining a growing economy.

It is fundamentally wrong to put the entire economy at the service of a single goal and to commit to a single solution. Human action always involves weighing up different goals and different means.

The COVID-19 panic may have sped up the beginning of this economic crisis, but the virus wasn’t the cause. The real cause of the crisis was the boom that came before it.