Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

Bank Credit Expansion and Its Effects on the Economic System 361THE MARKET’S SPONTANEOUS REACTION TO CREDIT EXPANSIONWe will now consider the microeconomic factors which willhalt the process of exaggerated optimism and unsustainableRoy McCloughry, ed. (Chicago: University of Chicago Press, 1984); andlast, The Pure Theory of Capital (1941; four later editions, and vol. XII ofHayek’s Collected Works). Hayek himself, in an “Appendix” to Prices andProduction (pp. 101–04), lists the main forerunners of the Austrian theoryor circulation credit theory of the business cycle, which can be traced backto Ricardo himself (the first to describe the effect Hayek christened the“Ricardo Effect”), Condy Raguet, James Wilson, and Bonamy Price in Englandand the United States; J.G. Courcelle-Seneuil, V. Bonnet, and YvesGuyot in France; and curiously, in German, ideas very similar to those ofthe theorists of the Austrian School can be found in the writings of KarlMarx and especially in those of Mijail Tugan-Baranovsky (see his work,Industrial Crises in England, St. Petersburg, 1894), and of course in those ofBöhm-Bawerk (Capital and Interest, vol. 2: Positive Theory of Capital, pp.316ff.). Later these contemporaries of Hayek worked along the same lines:Richard von Strigl, in Kapital und Produktion (Munich and Vienna:Philosophia Verlag, 1934, 1982; English translation, Auburn, Ala.: Ludwigvon Mises Institute, 2000); Bresciani-Turroni in Italy, The Economics of Inflation:A Study of Currency Depreciation of Post-War Germany (1931, 1937; Londonand New York: Augustus M. Kelley 1968); Gottfried Haberler,“Money and the Business Cycle,” published in 1932 and reprinted in TheAustrian Theory of the Trade Cycle and Other Essays (Washington, D.C: Ludwigvon Mises Institute, 1978), pp. 7–20; Fritz Machlup, The Stock Market,Credit and Capital Formation, originally published in German in 1931 andreprinted in English (London: William Hodge, 1940). Notable writings inthe English-speaking world include: Davenport, The Economics of Enterprise(New York: Augustus M. Kelley, [1913] 1978), chap. 13; Frederick Benham,British Monetary Policy (London: P.S. King and Shaw, 1932); H.F.Fraser, Great Britain and the Gold Standard (London: Macmillan, 1933);Theodore E. Gregory, Gold, Unemployment and Capitalism (London: P.S.King and Shaw, 1933); E.F.M. Durbin, Purchasing Power and Trade Depression:A Critique of Under-Consumption Theories (London and Toronto:Johnathan Cape, 1933), and The Problem of Credit Policy (London: Chapmanand Hall, 1935); M.A. Abrams, Money in a Changing Civilisation (London:John Lain, 1934); and C.A. Phillips, T.F. McManus and R.W. Nelson, Bankingand the Business Cycle, (New York: Arno Press, 1937). And also in theUnited States, the work of Frank Albert Fetter, esp. his article, “InterestTheory and Price Movements,” American Economic Review 17, no. 1 (1926):72ff. (included in F.A. Fetter, Capital, Interest, and Rent, Murray N. Rothbard,ed. [Kansas City: Sheed Andrews and McMeel, 1977]).73 It is important to remember that in 1974 the Swedish Academyawarded F.A. Hayek the Nobel Prize in Economics precisely for his