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

Additional Considerations on the Theory of the Business Cycle 459evils of the credit policy. This creates an environment of monetaryirresponsibility which tends to aggravate problems andmakes it highly unlikely they will be resolved through a sensiblereadjustment and liquidation which lay the foundations fora sustained recovery that does not depend on credit expansion.The recurrent economic crises credit expansion provokesexert another very destructive effect on market economies andthe principles of freedom of enterprise. Indeed each expansionprocess is invariably followed by a painful stage of readjustment,which is the ideal breeding ground for justifications ofsubsequent state intervention in the economy and for populararguments that it is precisely the economic recession whichreveals the inadequacies of a market economy and “proves”the necessity for the state to intervene more in the economy atall levels to mitigate the consequences of the recession andprevent further crises. Thus the recession provides a favorableenvironment for the resurgence of proposals of trade protectionism,market intervention, increases in the governmentbudget deficit, and regulation of the economy. As we know,these interventionist policies only serve to prolong and aggravatethe recession, and to hamper the necessary recovery.Sadly, the timid beginnings of the recovery are accompaniedby such public pressure in favor of new credit expansion thatexpansion begins again and the entire process is repeated. AsMises eloquently concludes: “But the worst is that people areincorrigible. After a few years they embark anew upon creditexpansion, and the old story repeats itself.” 5814THE INFLUENCE EXERTED ON THE STOCK MARKETBY ECONOMIC FLUCTUATIONSThe stock market is an important part of the marketplacein which securities representing loans to companies are traded(also called the “capital market”). Securities are the legal58 Mises, Human Action, p. 578.