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

456 Money, Bank Credit, and Economic Cyclesunemployed) would be the least debilitating under theextreme conditions described above. 5313THE “MANIC-DEPRESSIVE” ECONOMY:THE DAMPENING OF THE ENTREPRENEURIAL SPIRITAND OTHER NEGATIVE EFFECTS RECURRING BUSINESSCYCLES EXERT ON THE MARKET ECONOMYThe economic crises credit expansion repeatedly provokeslead to other consequences which are more subtle, yet no lessdamaging to the harmonious cooperation among people andto their economic and social development. 54 Specifically it is53 F.A. Hayek himself mentions that, under such circumstances, the leastdamaging policy would consist of offeringemployment through public works at relatively low wages sothat workers will wish to move as soon as they can to otherand better paid occupations, and not by directly stimulatingparticular kinds of investment or similar kinds of publicexpenditure which will draw labour into jobs they will expectto be permanent but which must cease as the source of theexpenditure dries up. (Hayek, “The Campaign against KeynesianInflation,” p. 212)However the risk of this type of concession is that, in current democraticsystems, it is almost certain to be used by politicians in a less than rigorousmanner to justify their measures of intervention in any economicrecession. A possible solution might be to include as an article in theconstitution the principle, supported by classical experts of publicfinance, of a balanced budget. As the agreement of all political forceswould be required in order to modify the article, and this would onlyoccur in the case of a unanimous belief in the “critical” nature of the situation,the risk of the unjustified implementation of artificial expansionarymeasures in times of crisis could be reduced.54 The fact that new crises erupt every few years shows that they originatefrom the credit expansion process, which necessarily sets off thespontaneous readjustments we have studied. In the absence of creditexpansion, economic crises would be specific, isolated events whichwould result only from unusual phenomena of a physical sort (poorcrops, earthquakes, etc.) or of a social sort (wars, revolutions, etc.). They