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

Additional Considerations on the Theory of the Business Cycle 431hit if all credit expansion is not prevented. Thus in the nearfuture these considerations may very well regain their veryimportant practical significance. At any rate, they are of greatuse in understanding many economic cycles of the past (themost consequential of which was the Great Depression of1929), and as an application of the theoretical conclusions ofour analysis. 3030 Gottfried Haberler demonstrated that a fall in the general price levelcaused by improvements in all lines of production does not lead to thesame adverse consequences as monetary deflation. See his monograph,Der Sinn der Indexzahlen: Eine Untersuchung über den Begriff des Preisniveausund die Methoden seiner Messung (Tübingen: Verlag von J.C.B.Mohr [Paul Siebeck], 1927), pp. 112ff. See also his article, “MonetaryEquilibrium and the Price Level in a Progressive Economy,” publishedin Economica (February 1935): 75–81 (this article has been reprinted inGottfried Haberler, The Liberal Economic Order, vol. 2: Money and Cyclesand Related Things, Anthony Y.C. Koo, ed. [Aldershot: Edward Elgar,1993], pp. 118–25). Gottfried Haberler later qualified his position on theAustrian theory of the business cycle. This led some to believe, in ouropinion unjustifiably, that Haberler had recanted his position entirely.The most substantial concession he made consisted of the statementthat the theorists of the Austrian School had not rigorously shown thatthe stabilization of prices in an improving economy would necessarilyalways lead to an economic crisis (see Haberler, Prosperity and Depression,pp. 56–57). Furthermore Haberler did not base his change of opinionon any theoretical consideration, but merely on the possibility thatduring the evolution of the cycle, additional, unforeseen phenomenamight occur (such as an increase in voluntary saving, etc.), which wouldtend to neutralize to an extent the forces indicated by the economicanalysis. Therefore it is the responsibility of Haberler and his supportersto explain, in reference to each specific cycle, what particular circumstancesmay have neutralized the typical effects of credit expansion,effects, on the whole, predicted by the Austrians, whose formal theoryHaberler and his followers have not been able to discredit at all (see alsoour comments on the similar thesis of D. Laidler, in chapter 7, pp.528–30). Another author of relevant work is L. Albert Hahn, who, in hisbook, Common Sense Economics (New York: Abelard-Schumann, 1956, p.128), asks whether or not a rise in productivity justifies a policy of inflationarycredit expansion. He arrives at the conclusion that such a policy,which generates inflation without inflation and is generally consideredtotally harmless, can have very disturbing effects and cause a deep economiccrisis. According to Hahn, theorists who consider such a policyinnocuous err because they “overlook the fact that productivity