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

436 Money, Bank Credit, and Economic Cycleswhich always acquire great popularity and political supportduring crises, in view of the socially painful nature of suchphenomena. The following are among the main steps whichare normally proposed and should be averted:(a) The granting of new loans to companies from thecapital goods stages to keep them from goingthrough a crisis, suspending payments and having todepression is a time of economic strain. Any reduction oftaxes, or of any regulations interfering with the free-market,will stimulate healthy economic activity.He concludes,There is one thing the government can do positively, however:it can drastically lower its relative role in the economy,slashing its own expenditures and taxes, particularly taxesthat interfere with saving and investment. Reducing its taxpendinglevel will automatically shift the societal savinginvestment-consumptionratio in favor of saving and investment,thus greatly lowering the time required for returning toa prosperous economy. (America’s Great Depression, p. 22)Rothbard also provides us with a list of typical government measureswhich are highly counterproductive and which, in any case, tend to prolongthe depression and make it more painful. The list is as follows:(1) Prevent or delay liquidation. Lend money to shaky businesses,call on banks to lend further, etc. (2) Inflate further. Furtherinflation blocks the necessary fall in prices, thus delayingadjustment and prolonging depression. Further credit expansioncreates more malinvestments, which, in their turn, willhave to be liquidated in some later depression. A government“easy-money” policy prevents the market’s return to the necessaryhigher interest rates. (3) Keep wage rates up. Artificialmaintenance of wage rates in a depression insures permanentmass unemployment. . . . (4) Keep prices up. Keeping pricesabove the free-market levels will create unsalable surpluses,and prevent a return to prosperity. (5) Stimulate consumptionand discourage saving. . . . [M]ore saving and less consumptionwould speed recovery; more consumption and less savingaggravate the shortage of saved capital even further. . . . (6)Subsidize unemployment. Any subsidization of unemployment. . . will prolong unemployment indefinitely, and delay theshift of workers to the fields where jobs are available. (America’sGreat Depression, p. 19)