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

Additional Considerations on the Theory of the Business Cycle 497these facts. Furthermore Hughes examines the impact ofcredit expansion and recession on different sectors belongingto various stages of the productive structure (some closer toand some further from consumption). His empirical timeseriesstudy confirms the most important conclusions of ourtheory of the cycle. 106 Moreover this recession was accompaniedby a severe bank crisis which in the United States becameapparent due to the collapse of several important banks andespecially to the failure of the savings and loan sector, theanalysis of which has appeared in many publications. 107This last recession has again surprised monetarists, whocannot understand how such a thing happened. 108 Howeverthe expansion’s typical characteristics, the arrival of the crisisand the ensuing recession all correspond to the predictions ofthe Austrian theory of the cycle.Perhaps one of the most interesting, distinguishing characteristicsof the last cycle has been the key role the Japanese106 Hughes, “The Recession of 1990: An Austrian Explanation,” pp. 107–23.107 For example, Lawrence H. White, “What has been Breaking U.S.Banks?” pp. 321–34, and Catherine England, “The Savings and LoanDebacle,” in Critical Review 7, nos. 2–3 (Spring and Summer, 1993):307–20. In Spain, the following work of Antonio Torrero Mañas standsout: La crisis del sistema bancario: lecciones de la experiencia de EstadosUnidos (Madrid: Editorial Cívitas, 1993).108 On this topic Robert E. Hall arrives at a most illustrative conclusion:Established models are unhelpful in understanding thisrecession, and probably most of its predecessors. There wasno outside force that concentrated its effects over the fewmonths in the late summer and fall of 1990, nor was there acoincidence of forces concentrated during that period. Rather,there seems to have been a cascading of negative responsesduring that time, perhaps set off by Iraq’s invasion of Kuwaitand the resulting oil-price spike in August 1990. (Hall,“Macrotheory and the Recession of 1990–1991,” American EconomicReview (May 1993): 275–79; above excerpt appears onpp. 278–79)It is discouraging to see such a prestigious author so confused about theemergence and evolution of the 1990s crisis. This situation says a lotabout the pitiful current state of macroeconomic theory.