America’s Great Depression and Austrian Business Cycle Theory
When Murray Rothbard’s America’s Great Depression first appeared in print in 1963, the economics profession was still completely dominated by the Keynesian Revolution that began in the 1930s. Rothbard, instead, employed the “Austrian” approach to money and the business cycle to explain the causes for the Great Depression, and to analyze the misguided and counterproductive policies that followed in the early 1930s, which, in fact, only intensified and prolonged the economic downturn.
To many of the economists in the early 1960s, Rothbard’s “Austrian” approach seemed out-of-step with the then generally accepted textbook, macroeconomic approach that focused on a highly “aggregate” analysis of economic changes and fluctuations on general output and employment as a whole. There was also the widely held presumption that governments could easily maintain economy-wide growth and stability through the use of a variety of monetary and fiscal policy tools.
We can now see that it represented the revival of the “Austrian” monetary tradition in the post-World War II period.
However, in the early to mid-1930s, the Austrian explanation of the Great Depression was at the forefront of the theoretical and policy debates of the time. Ludwig von Mises (1881-1973) first developed the “Austrian” theory on the causes of inflations and depressions in his book, The Theory of Money and Credit (1912; 2nd revised ed., 1924) and then in his monograph, Monetary Stabilization and Cyclical Policy (1928).But the Austrian theory’s international recognition and role in the business cycle debates and controversies in the 1930s were particularly due to Friedrich A. Hayek (1899-1992). His version of the theory was presented in his works, Prices and Production (1932), Monetary Theory and the Trade Cycle (1933), and Profits, Interest and Investment (1939).
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