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

Additional Considerations on the Theory of the Business Cycle 427consumption soared throughout the final years of the expansion,as a result of the substantial increase in their productivity.Their goods were sold at constant nominal prices in anenvironment of great inflationary expansion. Therefore thefactors which typically trigger the recession (relative growthin profits in consumption and a mounting interest rate),including the “Ricardo Effect,” are equally present in an environmentof rising productivity, insofar as increased profitsand sales in the consumer sector (more than the jump in nominalprices, which at that point did not take place) reveal thedecline in the relative cost of labor in that sector.The theoretical articles Hayek wrote on the occasion of hisfirst scholarly trip to the United States in the 1920s were aimedat analyzing the effects of the policy of stabilizing the monetaryunit. Fisher and other monetarists sponsored the policy,and at that time its effects were considered harmless and verybeneficial to the economic system. Upon analyzing the situationin the United States, Hayek arrives at the opposite conclusionand presents it in his well-known article, “IntertemporalPrice Equilibrium and Movements in the Value of Money,”published in 1928. 26 There Hayek demonstrates that a policy26 The article was first printed in German with the title, “Das intertemporaleGleichgewichtssystem der Preise und die Bewegungen des‘Geldwertes,’” and published in Weltwirtschaftliches Archiv 2 (1928):36–76. It was not translated nor published in English until 1984, when itwas included in the book, Money, Capital and Fluctuations: Early Essays,pp. 71–118. A second English translation, by William Kirby, appeared in1994. It is superior to the first and is entitled, “The System of IntertemporalPrice Equilibrium and Movements in the ‘Value of Money,’” chapter27 of Classics in Austrian Economics: A Sampling in the History of a Tradition,Israel M. Kirzner, ed., vol. 3: The Age of Mises and Hayek (London:William Pickering, 1994), pp. 161–98. Prior to this article, Hayek dealtwith the same topic in “Die Währungspolitik der Vereinigten Staatenseit der Überwindung der Krise von 1920,” Zeitschrift für Volkswirtschaftund Sozialpolitik 5 (1925): vols. 1–3, pp. 25–63 and vols. 4–6, pp. 254–317.The theoretical portion of this article has appeared in English with thetitle, “The Monetary Policy of the United States after the Recovery fromthe 1920 Crisis,” in Money, Capital and Fluctuations: Early Essays, pp.5–32. Here Hayek first criticizes the stabilization policies adopted in theUnited States.