“The Man Who Predicted the Depression,” in Saturday’s WSJ explains von Mises’s interpretation of the business cycle. To Mises, volatility was inevitable with a politically controlled money supply – given to over and under supply of money. The Federal Reserve and central banks generally are political-indeed, the most powerful Government Sponsored Enterprises. When they ease credit via transactions with designated banks, banks in their ambit also view themselves as wealthier, spending and investing accordingly. When credit is tightened, the reverse occurs. Since these are political rather than market credit signals – they create instability in the economy. Certain sectors (does “housing” come to mind?) grow excessively resulting in collapse (house cleaners in NYC purchasing condos for “investment” is an indication). But politicians (Barney Frank, for example) find Mises’s view distasteful-how can all citizens achieve the American Dream of home ownership unless credit is free?
Of course, as the economist, Herbert Klein, often noted: When something can’t go on forever, it will stop! It did and von Mises warned us of that many years ago.