On June 12, Missouri governor Mike Parson signed HB 85, the “Second Amendment Preservation Act” recently approved by the state’s legislature.

The new law is designed to prevent state and local law enforcement from enforcing federal laws regulating private ownership of firearms.

The act

According to the Austrian business cycle theory (ABCT), the boom-bust cycle emerges in response to a deviation in the market interest rate from the natural interest rate, or the equilibrium interest rate. It is held that the major cause for this deviation is increases in the money supply. Based on this it would appear that on a gold standard without the central bank, an increase in the supply of gold will set in motion boom-bust cycle.

The June Federal Open Market Committee Meeting (FOMC) presented more of the same problem, the continual purchase of $120 billion in bonds a month and near zero interest rates. Only this time, the Fed increased the interest it pays on bank reserves from 0.10 to 0.15 percent. The stated purpose, per Chair Jerome Powell, was

in order to keep the federal funds rate well within the target range and to support smooth functioning in money markets.

Markets clear. Or so was the accumulated wisdom in the half century before John Maynard Keynes. The British economist proposed a novel theory of economics in 1936 based on the opposite premise: markets don’t clear. While Keynesian theory is quite complex and his book widely regarded as unreadable, in his system, chronic idleness of useful resources is the rule. In Keynes’s world, the market can find a market-clearing price through decentralized adjustments for most preferences among most goods.

On Wednesday, the Federal Reserve’s Federal Open Market Committee voted to continue with a target federal funds rate of 0.25 percent, and to continue with large-scale asset purchases. According to the committee’s press release:

The nation’s billionaires are catching plenty of grief for profiting from the pandemic. All they are guilty of is providing services people wish to pay for. Nothing wrong with that. Then there are the mortgage companies. It turns out they are turning a good profit off Uncle Sam’s forced forbearance plan. 

During the eighteenth century, capitalism in Europe “took off” in a way it had not done before, and as a result the West surpassed all other areas of the world in economic growth. What led to this transformation? Max Weber offers the most famous answer. In The Protestant Ethic and the Spirit of Capitalism (1905), he traces the new system to the Puritans. Before them, though there were rich merchants, substantial savings and investment by private individuals was unusual. The Puritans changed matters.

Austrian economists have a well-developed theory that explains the boom, bubble, bust, and recovery. A good introduction to the Austrian theory of the business cycle can be found in Larry Sechrest’s article “Explaining Malinvestment and Overinvestment.” Larry wrote the article to provide a pedagogical device for economics students, but academic economists will probably be able to understand it as well.