Growing stock market volatility is increasingly reminding investors of downturns that twice crashed valuations by more than 50% since the turn of the century. Many Americans remain perplexed as to why the economy appears to teeter perennially on the brink.
A small group of radical economists, followers of the late Ludwig von Mises, think they know why.
“Conventional economists believe that free markets cause booms and busts,” said George Bragues, an adjunct professor at the University of Guelph-Humber, who will be speaking at the International Conference of Prices and Markets taking place in Toronto this weekend.
“That’s only partially true,” said Bragues . “There is a good argument that governments themselves, more specifically central-bank driven borrowing, are the biggest creators of economic euphoria and subsequent depression.”
Do governments cause depressions?
Von Mises’s free-market ideology— so radical it makes the American Republican party look communist—is almost completely ignored by governments, ivy league university economics departments and central banks.
However, that ignorance comes at a price.
Today, the ghost of Von Mises’s ideas haunts much of the planet, where governments have quietly, often secretly, fostered colossal debt bubbles that will almost be impossible to deflate without calamity.
Von Mises’s suggestion that credit bubbles are the key drivers of booms and depression, broadly known as the Austrian Business Cycle Theory, was first outlined in his 1912 book Theory of Money and Credit.
Murray Rothbard built on this theory in his own 1963 work America’s Great Depression, which provided a convincing case study on how the U.S. government fueled the 1920s stock market expansion, collapse and the ensuing spillover effects.
Mises’s out-of-the-box works are particularly important as the planet inches towards peak debt and what the IMF warns could be an impending depression, because populist socialist politicians such as Bernie Sanders will almost certainly blame the free markets.
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