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

Additional Considerations on the Theory of the Business Cycle 479explanation, which is rejected because there is no sufficientquantitative evidence for it. 81While taking the above warnings and considerations intoaccount, in this section we will see that the available historicaldata concerning past cycles of boom and recession fits inexcellently with our theory of the cycle. In addition at the endof this section we will review the studies conducted to empiricallytest the Austrian theory of the business cycle.BUSINESS CYCLES PRIOR TO THE INDUSTRIAL REVOLUTION(a) It would be impossible to cover here (even in condensedform) all cycles of boom and recession whichaffected the world’s economies prior to the IndustrialRevolution. Nevertheless we are fortunate enough tohave available to us a growing number of works oneconomic history which greatly facilitate the applicationof the theory of the business cycle to specific economicevents from the past. We could begin by mentioningCarlo M. Cipolla’s works on the crises whichgripped the Florentine economy in the mid-fourteenthcentury and in the sixteenth century, crises wecovered in chapter 2. 82 Indeed we saw that Cipolla,81 Hayek made these important observations regarding the difficulty ofempirically testing economic theories, particularly the theory of thecycle, in the acceptance speech he made on receiving the Nobel PrizeDecember 11, 1974. See his article, “The Pretence of Knowledge,” TheAmerican Economic Review (December 1989): 3. Hayek concludes in thesame place:[W]hat is probably the true cause of extensive unemploymenthas been disregarded by the scientistically minded majorityof economists, because its operation could not be confirmedby directly observable relations between measurable magnitudes,and that an almost exclusive concentration on quantitativelymeasurable surface phenomena has produced a policywhich has made matters worse. (p. 5)82 Carlo M. Cipolla, The Monetary Policy of Fourteenth-Century Florence(Berkeley: University of California Press, 1982); and Money in Sixteenth-Century Florence (Berkeley: University of California Press, 1989).