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Source link: http://archive.mises.org/5709/the-prophet-of-the-great-depression/

The Prophet of the Great Depression

October 4, 2006 by


The Causes of the Economic Crisis
is a collection of articles on the business cycle, money, and exchange rates by Ludwig von Mises that appeared between 1919 and 1946. Here we have the evidence that the master economist foresaw and warned against the breakdown of the German mark, as well as the market crash of 1929 and the depression that followed.

Mises presents his business cycle theory in its most elaborate form, applies it to the prevailing conditions, and discusses the policies that governments undertake that make recessions worse (even before Keynes’s General Theory appeared!). He recommends a path for monetary reform that would eliminate business cycles as we have known them and provide the basis for a sustainable prosperity. FULL ARTICLE

{ 12 comments }

Roger M October 4, 2006 at 9:59 am

Thanks for the enlightening article. I’ve wondered for a while if Mises anywhere identifies who the early receivers of new money are. It seems to me that they would be banks, followed by capital intensive industries. Laborers would receive the new money only after it had caused price increases and lost its value. The reason I ask is that I’ve been reading a lot about stagnant wages and I think monetary policy may be the culprit.

Roger M October 4, 2006 at 10:23 am

I found this answer to my question above from Hayek: “There will always be some people who have more money to spend before the others. Who these people are will depend on the particular manner in which the increase in the money stream is being brought about. It may be spent in the first instance by government on public works or increased salaries, or it may be first spent by investors mobilizing cash balances or borrowing for the purpose; it may be spent in the first instance on securities, on investment goods, on wages or on consumer’s goods. It will then in turn be spent on something else by the first recipients of the additional expenditure, and so on. The process will take very different forms according to the initial source or sources of the additional money stream; and all its ramifications will soon be so complex that nobody can trace them.”

Does anyone have anything else?

Brad Valentine October 4, 2006 at 11:03 am

Is this book any different from Mises’
On the Manipulation of Money and Credit?

jeffrey October 4, 2006 at 12:09 pm

The Mises essays are the same as Manipulation (which is out of print) but they are corrected and the vast editorializing and extraneous material in that book has been cut. So it is Mises alone, along with an intro by Shostak and a reduced preface by Percy.

Marco Saba October 4, 2006 at 9:40 pm

A rare disease is affecting central bankers:
Monopoliomyelitis (Monopoliomielitis Nummaria)
(a.k.a. “mono-polio”, “economic paralysis”)

FAQ:

What is mono-polio?

Mono-polio is a viral disease which may affect the central economic system: some people think they can be able to print fake money forever exclusively for their own benefit. While mono-polio immunization has not become widespread, cases of mono-polio are very common.

Who gets mono-polio?

Mono-polio is more common in adults working in the banking sector and occurs under conditions of poor etics and poor parental care.
However, economic paralysis is more common and more severe when infection occurs in older individuals. In exceedingly rare cases, mono-polio information has caused revolutionary acts in a person who received the knowledge or in a person who was a close contact of an aknowledged recipient.
Elitism [addiction to élite] do greatly increase the risk of getting the mono-poliomyelitis disease.

How is mono-polio spread?

Mono-polio is predominately spread through close-door bankers meetings in Basel, Washington, and Frankfurt.

What are the symptoms of mono-polio?

Infection ranges in severity from an unapparent infection – like Free-Trade zones – to a paralytic economic disease which may result in death of the whole economic system.
Symptoms include malinvestments, inflation, deflation, structural reforms, boom-bust cycles, flatulence, malaise, headache, excruciating social pain and hard stiffness in the back.

How soon after infection do symptoms appear?

The incubation period is usually six to 20 years of standard mainstream study in economics and finance.

When and for how long is a person able to spread
mono-polio?

Patients are most infectious from seven to 10 years after they are enrolled in a major financial institution (IMF, WB). However, patients are potentially contagious as long as the virus is present in their speeching and proceedings. The virus persists in the brain for approximately one week after they are fired from their employer and it is excreted in the feces for several weeks or, occasionally, months.

Does past infection with mono-polio make a person
immune?

There are three types of mono-polio virus (media professionals, congressmen and lobbyists). Lifelong immunity usually depends on which type of virus a person contracts. Second attacks are not rare and result from infection with a mono-polio virus of a different type than the first attack. I.E. you may be infected by a more rich-class-virus.

What is the treatment for mono-polio?

There is presently no definitive cure for mono-polio. Treatment involves supportive care and enactment of complementary currency systems [ccs]. Some scientists label ccs as a palliative.

What are the complications associated with mono-polio?

Complications include economic paralysis (most commonly of the poorest). Paralysis of the economic activities can be fatal.

Is there a vaccine for mono-polio?

No, you can only try to immunize yourself by education. You can help yourself by reading many books available for free on the internet or joining some mailing-lists.
Adults traveling to countries where mono-polio cases are occurring should review their immunization status.

How can mono-polio be prevented?

Maintaining high levels of mono-polio education in the community is the single most effective preventive measure.
The Italian NGO driving the international campaign to fight against the monopoliomyelitis disease – the Italian Center for Monetary Studies – can be found at:
http://www.centrostudimonetari.org

adi October 5, 2006 at 5:02 am

Mises may be wrong about the determinants of exchange rate movements since his theory is many ways similar to Gustav Cassel’s purchasing power parity theory of exchange rates (Economic Journal,1916). There are many reasons why actually PPP theories dont hold water; commodity arbitrage possibilites are limited by trade barriers, role of non-tradables vs tradables commodities which forms basket of goods when measuring price levels and lack of good statistics.

My own master thesis in economics is about exchange rate pass-through and I have seen many empirical studies so I do know that this PPP theory may be wrong. Does anyone knows about so called McDonalds index ?

Roger M October 5, 2006 at 8:20 am

Adi:”Does anyone knows about so called McDonalds index ?”

I’ve seen it off and on for years. I think you’re right about the PPP thing. I’ve studied FX movements for years and have not found viable explanations in the sense that they would allow you to forecast exchange rates. However, just yesterday I was working with a technique I had just learned called Partial Least Squares (PLS) to create a model of the Euro/Dollar rate. I included money supply, trade, balance of payments, inflation and other things, all without lags. The money supply figures came out as the most important factors in explaining FX movements. The data are monthly averages. Now we know that money supply affects the purchasing power of money with about an 18 month lag, so there is some indirect confirmation of the PPP theory.

Alex Davidson October 6, 2006 at 3:28 am

When more money is placed in circulation, Mises and others explain that wealth is redistributed because early receivers benefit at the expense of later receivers of the ‘new money’. But since money is homogeneous, the purchasing power of all money must change at the same time. Clearly it is knowledge of the change in purchasing power that is important, and these days there wouldn’t be too many people who don’t have that knowledge. It does not seem plausible that this mechanism could be responsible for the bulk of the wealth redistribution which occurs due to money inflation.

Surely the most significant wealth transfer mechanism is the benefit to those holding debt at the expense of those holding money.

James Redford October 27, 2006 at 4:42 pm

Alex Davidson, money is “homogeneous” in the sense that one bill of the same denomination can be exchanged for another, or in the sense that $231 can be made up of many different combinations of denominations, and it still works out to the same purchasing power. But money is most definitely not homogeneous in the sense of the effects it causes depending on who gets to spend it first (i.e., in the case of fiat and fractional reserve currency).

If your claim were the case, there would be no point in counterfeiters printing up their own dollars.

The first spenders of the fiat/fractional reserve money get the benefit of obtaining actual goods and services by spending money that was, in effect, created out of thin air. That is, the first spenders of the fiat/fractional reserve money get actual goods and services essentially for free. Whereas the rest of economy is saddled with a devauled currency. Moreover, actual goods and services in the economy are being funneled from genuine value producers into a parasitical sector of society, thereby making society as a whole poorer and less productive than it would have been without this parasitical drain.

Thus, a fiat/fractional reserve currency acts as an obfuscated tax (although a particularly pernicious one, since it also causes the boom-bust cycle).

Nor does the devaluation of the fiat/fractional reserve currency happen homogeneously. The people who obtain the money closer in the nexus of distribution to where it was introduced get the benefit of spending the newly-created money before the full effects of the currency’s devaluation have worked their way across the entire economy.

DS December 12, 2006 at 12:28 pm

Our entire money creation system needs an overhauling in order to make it fair for everyone (and to remove the advantage these international bankers currently enjoy).

Baby Jesus December 19, 2006 at 5:27 pm

I think I touched a little boy’s private parts. Does that mean I have monopolio disease?

Sam December 19, 2006 at 11:18 pm

From this type of discussion of economics, it is quite clear the only solution would have to be trading in 100% 24-carat pure gold weights. Also I suppose it is also OK to presume that the amount of gold being mined or found would not add much to the existing gold reserves, hence new gold finds would not have much of an inflationary effect. To talk of fudiciary notes (‘backed by gold’) is pointless as the notes could still be printed regardless since I have never heard of a fudiciary-note census to make sure the gold-to-note ratio is correct.

My big question is to metallurgist is how to tell the difference a pure 24-carat 10 gram nugget versus, say, a 90% gold 10 gram alloy? Without purity checking low quaity ‘gold’ pieces will eventually start circulating through the system.

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