It seems an opportune time to revisit Antony P Müller’s prescient paper, The Failure of International Crisis Management.
This paper argues that the philosophy of management of financial crises, by such agencies as the IMF, ignores the structural problems introduced in the economy by credit expansion. Their theoreitcal framework operates at an excessively high level of aggregation, which does not admit of the the boom and bust process as described by Austrians. The usual remedy of creating more “liquidity” tends to exacerbate the problem.
- This paper argues that financial crises, when analyzed in the light of the theory of capital and money as elaborated by Hayek and Mises, are to be analyzed as symptoms of economic distortions. The malinvestments at their roots are typically brought about by excessive credit growth or government
interventionist policies, and as such the disequilibrium may be exacerbated when new liquidity is injected into the economy, resulting in the familiar patterns of boom and bust.
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