Ludwig von Mises on the financial crisis – and the calamitous response to it
By Daniel Hannan Politics Last updated: October 7th, 2011
Ludwig von Mises isn't an easy read. His early works are in German, and his later books, though written in English, read like ponderous translations from his mother tongue. He has an unnerving tendency to swerve from dense, technical prose to furious polemic. He was, by all accounts, a difficult and rebarbative colleague.
Yet this stubborn, cussed, brilliant man has more pertinent things to say about the debt crisis than anyone else I can think of. Forty years after his death, he is being vindicated. The credit crunch, and the misconceived Keynesian response to it, have settled the argument once and for all in his favour.
Here are some of the things Mises wrote in anticipation of our present discontents.
What is needed for a sound expansion of production is additional capital goods, not money or fiduciary media. The credit expansion is built on the sands of banknotes and deposits. It must collapse.
Human Action
True, governments can reduce the rate of interest in the short run, issue additional paper currency, open the way to credit expansion by the banks. They can thus create an artificial boom and the appearance of prosperity. But such a boom is bound to collapse soon or late and to bring about a depression.
Omnipotent Government
There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
Human Action
Ponder those words, Mervyn King, and tremble.
You can learn more about Austrian School economics from the Mises Institute or from the outstanding British think-tank, the Cobden Centre.
