Rothbard A to Z

BALANCE OF PAYMENTS

The “keeping money at home” argument is patently fraudulent …

Economic Thought Before Adam Smith, p. 236

There is nothing wrong with a trade deficit.

Making Economic Sense, p. 178

During the day of the gold standard, a deficit in the national balance of payments was a problem, but only because of the nature of the fractional-reserve banking system.

… in the fiat-money era, balance of payments deficits are truly meaningless.

Making Economic Sense, pp. 365–66

… inflationary bank credit expansion in one country causes prices to rise in that country, as well as an outflow of gold and a deficit in the balance of payments to other countries.

Mystery of Banking, p. 121

BANKING

Generally, however, bank runs only occur after a depression has already weakened confidence …

America’s Great Depression, p. 55

… private banks, by expanding loans, create demand deposits which function as part of the money supply.

Classical Economics, p. 231

… bank deposits are just as much creatures of bank credit as bank notes …

Classical Economics, p. 232

… increased production of trade does not “require” or call forth an increase in bank money. The causal chain is the other way round: increased bank note issue raises the money supply and prices, and also the nominal money value of the goods being produced.

Classical Economics, p. 253

… bank money or government money, whether as tangible notes or demand deposits, is an increase in the effective money supply virtually out of thin air. …

… the creation of bank money or government paper is not socially useful …

Conceived in Liberty v. 2, p. 125; p. 6231

A “free market” also means no government interference whatever in the economy. It means that private individuals and firms are free to earn money and profits, and that they are also free to lose. There can be no genuine freedom to choose without a corollary freedom to lose. No firm may be considered “too big to fail.” And so a free market in money necessarily means the abolition of central banking and of so-called deposit “insurance.” Banks must be free to fail.

Economic Controversies, p. 216

Bank failures are a healthy weapon by which the market keeps bank credit inflation in check …

Economic Controversies, p. 861

Banking is the cause of the business cycle …

Economic Depressions: Their Cause and Cure, p. 26

… when the commercial banks lend money to an individual, a business firm, or the government, they are not relending existing money that the public laboriously had saved and deposited in their vaults—as the public usually believes. They lend out new demand deposits that they create in the course of the loan.

For a New Liberty, p. 224

… a libertarian prescription would stress the importance of absolute separation of money and banking from the State.

For a New Liberty, p. 240

The important point to realize is that the banking system, and particularly the Federal Reserve Banks, create money out of thin air. They are, in short, legalized counterfeiters.

Libertarian Forum v. 1, p. 485

… the word “bank” covers many different activities …

Making Economic Sense, p. 277

… most commercial banking is “deposit banking” based on a gigantic scam: the idea, which most depositors believe, that their money is down at the bank, ready to be redeemed in cash at any time … the depositors are systematically deluded. Their money ain’t there.

Making Economic Sense, p. 279

The proclaimed fact that our banking system relies so massively on our “confidence” demonstrates that such confidence is sadly misplaced.

Making Economic Sense, p. 343

A warehouse specializing in money is known as a “bank.”

Man, Economy, and State with Power and Market, p. 801

… banks will be particularly subject to the temptation to commit fraud … The fact that money is a homogeneous good means that people do not care whether the money they redeem is the original money they deposited. This makes bank frauds easier to accomplish.

Man, Economy, and State with Power and Market, p. 802

… the more money the bank creates, the more profits it will earn …

Man, Economy, and State with Power and Market, p. 809

… the commercial banks are literally creating money out of thin air.

Man, Economy, and State with Power and Market, p. 990

… banks create money … they are, in a sense, money-creating factories.

Mystery of Banking, p. 2

When one speaks of banks, there is a semantic problem, since the word bank covers several very different functions and activities. In particular, modern banking mixes and confuses two different operations with very different effects: loans and deposits.

Mystery of Banking, p. 75

Loan banking is a productive, noninflationary institution.

… Credit, and loan banking, is productive, benefits both the saver and the borrower, and causes no inflationary increase in the money supply.

Mystery of Banking, p. 79

A requirement that banks act as any other warehouse, and that they keep their demand liabilities fully covered, that is, that they engage only in 100 percent banking, would quickly and completely put an end to the fraud as well as the inflationary impetus of modern banking. Banks could no longer add to the money supply, since they would no longer be engaged in what is tantamount to counterfeiting.

Mystery of Banking, pp. 109–10

Bankers are inherently inclined toward statism.

Commercial bankers, engaged as they are in unsound fractional reserve credit, are, in the free market, always teetering on the edge of bankruptcy. Hence they are always reaching for government aid and bailout.

Investment bankers do much of their business underwriting government bonds, in the United States and abroad. Therefore, they have a vested interest in promoting deficits and in forcing taxpayers to redeem government debt. Both sets of bankers, then, tend to be tied in with government policy, and try to influence and control government actions in domestic and foreign affairs.

Wall Street, Banks, and American Foreign Policy, p. 1

… economically, there is no difference whatever between a bank note and a bank deposit.

What Has Government Done to Our Money?, p. 38

… the bank note or deposit is not an IOU, or debt; it is a warehouse receipt for other people’s property.

What Has Government Done to Our Money?, p. 42

A bank, then, is not taking the usual business risk. It does not, like all businessmen, arrange the time pattern of its assets proportionately to the time pattern of liabilities, i.e., see to it that it will have enough money, on due dates, to pay its bills. Instead, most of its liabilities are instantaneous, but its assets are not.

What Has Government Done to Our Money?, pp. 42–43

The bank creates new money out of thin air …

What Has Government Done to Our Money?, p. 43

… the bank is already and at all times bankrupt; but its bankruptcy is only revealed when customers get suspicious and precipitate “bank runs.”

What Has Government Done to Our Money?, p. 43

BASTIAT, FRÉDÉRIC

… a truly scintillating advocate of an untrammelled free market.

Classical Economics, p. 444

Bastiat’s fable of the broken window … brilliantly refuted Keynesianism nearly a century before its birth.

Classical Economics, p. 445

… a consistent civil libertarian …

Classical Economics, p. 447

… the nineteenth century French laissez-faire economist Frédéric Bastiat … stressed that government intervention stemmed from the fact that the benefits of subsidies or privileges are often direct and immediate, whereas the greater unfortunate consequences are more remote and indirect. The former are “seen” whereas the latter are “unseen,” and therefore the seeming benefits get all the attention.

Economic Thought Before Adam Smith, p. 333

… even if it be objected that governmental services are worth something, it would have to be noted that we are again suffering from the error pointed out by Bastiat: a sole emphasis on what is seen, to the neglect of what is not seen. We may see the government’s hydroelectric dam in operation; we do not see the things that private individuals would have done with the money—whether buying consumers’ goods or investing in producers’ goods—but which they were compelled to forgo.

Man, Economy, and State with Power and Market, p. 940

… libertarianism—laissez-faire—reached its apogee in the French rationalist works of Bastiat, Molinari, etc., in the middle and late nineteenth century.

Rothbard vs. the Philosophers, p. 66

BENTHAM, JEREMY

Jeremy Bentham (1748–1832) began as a devoted Smithian but more consistently attached to laissez-faire. During his relatively brief span of interest in economics, he became more and more statist. His intensified statism was merely one aspect of his major—and highly unfortunate—contribution to economics: his consistent philosophical utilitarianism. This contribution, which opens a broad sluice-gate for state despotism, still remains as Bentham’s legacy to contemporary neoclassical economics.

Classical Economics, p. 49

… a cloistered philosopher, legal theorist, and “projector” or crank, eternally grinding out schemes for legal and political reform which he urged upon the great and powerful.

Classical Economics, p. 49

Bentham’s first and enduring interest was in utilitarianism …

Classical Economics, p. 49

… as Bentham saw it … government action or spending cannot increase the total amount of capital in society; it can only divert capital from free market to less productive uses.

Classical Economics, p. 51

… Bentham denied economics altogether—that is, denied the possibility of laws abstracting from particular circumstances and applying to all exchanges or actions everywhere.

Classical Economics, p. 54

… Jeremy Bentham’s strictly economic views, especially when he slid back to mercantilism, had no impact on economic thought, even upon his own philosophic disciples such as James Mill and Ricardo. But his philosophic views, introduced into economics by these same disciples, left an unfortunate and permanent impact on economic thought: they provided economics with its underlying and dominant social philosophy.

Classical Economics, p. 56

Bentham’s utilitarianism led him to an increasingly numerous “agenda” for government intervention in the economy.… a welfare state; taxation for at least a partial egalitarian redistribution of wealth; government boards, institutes and universities; public works to cure unemployment as well as to encourage private investment; government insurance; regulation of banks and stockbrokers; guarantee of quantity and quality of goods.

Classical Economics, p. 62

In a profound sense, Bentham was a living reductio ad absurdum of Benthamism, a living object lesson of the results of his own doctrine.

Classical Economics, p. 62

Bentham’s goal was to approach, or simulate, the “ideal perfection” of complete and continuous inspection of everyone.

Classical Economics, p. 63

For Bentham, the state is the necessary cradle of the law, and every individual citizen’s duty is to obey that law. What the public needs and wants is not liberty but “security,” for which the power of the sovereign state must be unbounded and infinite.

Classical Economics, p. 67

… a statist economist …

Classical Economics, p. 481

This utilitarian crippling of libertarianism is still with us. Thus, in the early days of economic thought, utilitarianism captured free-market economics with the influence of Bentham and Ricardo, and this influence is today fully as strong as ever.

For a New Liberty, p. 20

Bentham was indeed terrible … but why? Precisely because his “rationalism” was a false one, for it rejected and attacked the true rationalist tradition of natural rights. It was because Bentham attacked natural rights and substituted the utilitarian doctrine that morality cannot be found by right reason, that he permitted the State to define morality and employ coercion.

Rothbard vs. the Philosophers, p. 65

BIMETALLISM

… bimetallism never works in practice … since Gresham’s law pushes the undervalued metal out of circulation and encourages the overvalued …

Classical Economics, p. 247

… Gresham’s Law … states that when government compulsorily overvalues one money and undervalues another, the undervalued money will leave the country or disappear into hoards, while the overvalued money will flood into circulation. Hence, the popular catchphrase of Gresham’s Law: “Bad money drives out good.” But the important point to note is that the triumph of “bad” money is the result, not of perverse free-market competition, but of government using the compulsory legal tender power to privilege one money above another.

History of Money and Banking in the United States, pp. 47–48

… Gresham’s Law should read: “Money overvalued by the State will drive money undervalued by the State out of circulation.” Whenever the State sets an arbitrary value or price on one money in terms of another, it thereby establishes an effective minimum price control on one money and a maximum price control on the other, the “prices” being in terms of each other.… Under bimetallism, a nation recognized gold and silver as moneys, but set an arbitrary price, or exchange ratio, between them. When this arbitrary price differed, as it was bound to do, from the free-market price (and this became ever more likely as time passed and the free-market price changed, while the government’s arbitrary price remained the same), one money became overvalued and the other undervalued by the government.

Man, Economy, and State with Power and Market, p. 899

No country, therefore, can maintain a bimetallic system in practice, since one money will always be undervalued or overvalued in terms of the other. The overvalued always displaces the other from circulation, the latter being scarce.

Man, Economy, and State with Power and Market, p. 900

BÖHM-BAWERK, EUGEN VON

… the Austrian Eugen von Böhm-Bawerk, in the second volume of his notable Capital and Interest, inconsistently returned to the productivity theory of interest after he had demolished that theory in the first volume. After coming to the brink of replacing the productivity theory by a time-preference theory of interest, Böhm-Bawerk withdrew from that path and tried to combine the two explanations—an eclecticism that capital and interest theory (in its “real” form) has followed ever since.

Capital, Interest, and Rent, p. 3

… the first to state properly the central problem of interest theory: To explain why present goods are valued more highly than future goods.

Capital, Interest, and Rent, pp. 9–10

… Böhm-Bawerk’s productivity explanation of interest makes use of the concept of the present value of capital and therefore assumes that the interest rate is already given, since it is needed to determine the present value of capital. Thus, Böhm-Bawerk’s productivity explanation of interest involved circular reasoning.

Capital, Interest, and Rent, p. 10

Since interest must have a unitary explanation, Böhm-Bawerk’s analysis is something of a retrogression.

Capital, Interest, and Rent, p. 12

Böhm-Bawerk’s devastating refutation of the … Marxian system remains definitive. It swept the boards in professional economics, and has remained dominant ever since, successfully inoculating economists, at least, against the Marxian virus, and certainly against the labor theory of value.

… Böhm-Bawerk, in sum, posed the grave inner contradiction of Marxian theory plainly and starkly: Marx claimed that goods exchanged on the market in proportion to the quantities of labor embodied in them (i.e., that their values are determined by the quantity of labor-hours needed to produce them), and yet also conceded that the rates of profit on all goods tended to be equal. And yet, if the first clause is true, the rates of profit would be systematically lower in proportion to the intensity of capital investment, and higher in proportion to their labor-intensiveness of production.

Classical Economics, p. 414

As Böhm-Bawerk was later to point out, even if we choose to adopt this cost-of-production approach, we have to recognize that capital embodies not just labor, and land, but also time. Land, as we shall see further, was tossed out by Marx by amalgamating it into capital; but if time had been acknowledged as an important factor, then time-preference would have to be acknowledged, and the entire Marxian system would have collapsed.

Classical Economics, p. 434n4

A case could easily be made that Böhm-Bawerk’s superb capital structure theory was “macro” as well as “micro.”

Economic Controversies, p. 205n60

… Böhm-Bawerk’s analysis of time preference and interest went far deeper, and far beyond the loan market for he showed that time-preference and hence interest return exist apart from or even in the absence of any lending at all. For the capitalist who purchases or hires land and labor factors and employs them in production is buying these factors with money (present good) in the expectation that they will yield a future return of output, of either capital goods or consumer goods. …

Therefore, in the Böhm-Bawerkian or Austrian insight, factors of production, hence workers or landowners, do not earn, as in neoclassical analysis, their marginal value product in equilibrium. They earn their marginal value product discounted by the rate of time-preference or rate of interest. And the capitalist, for his service of supplying factors with present goods and waiting for future returns, is paid the discount. Hence, time-preference and interest income exist in the state of equilibrium, and not simply as a charge on loans but as a return earned by every investing capitalist.

Economic Controversies, p. 265

… insight that the time market is not merely the credit market. For when workers and landowners earn money now for products that will only reap a return to capitalists in the future, they are receiving advances on production paid for out of capitalist saving, advances for which they in effect pay the capitalists a discount in the form of an interest return.

Economic Controversies, p. 267

… Böhm-Bawerk did not develop the theory of profits, losses, and uncertainty to any extent, which had to wait for Mises …

Economic Controversies, p. 285

Böhm-Bawerk’s need to claim originality and to demolish all his predecessors took precedence over the requirements of truth and justice.

Economic Thought Before Adam Smith, p. 402

… the first great systematizer of the Austrian School of economics …

Economic Thought Before Adam Smith, p. 513

… Eugen Böhm-Bawerk, one of the greatest of all economists.

Man, Economy, and State with Power and Market, p. 327

Böhm-Bawerk’s greatness as an economist needs no defense …

Man, Economy, and State with Power and Market, p. 328n5

The importance of time preference was first seen by Böhm-Bawerk.

Man, Economy, and State with Power and Market, p. 389n12

… Böhm-Bawerk [had a] highly unfortunate lapse into a productivity theory of interest …

Man, Economy, and State with Power and Market, p. 425n27

It is true, too, that the presentation by the master of capital and production theory, Böhm-Bawerk, sowed confusion by giving an historical interpretation to the structure of production. This is particularly true of his concept of the “average period of production,” which attempted to establish an average length of production processes operating at present, but stretching back to the beginning of time.

Man, Economy, and State with Power and Market, p. 481

Böhm-Bawerk is the great founder of production-structure analysis, but unfortunately he left room for misinterpretation by identifying capital accumulation with adopting “more roundabout” methods of production.

Man, Economy, and State with Power and Market, p. 537

… Böhm-Bawerk, didn’t discuss problems of monopoly, and in so doing, implied that the economic system was generally competitive.

Strictly Confidential, p. 314

BORDERS

… it must be recognized that there are no just national boundaries per se; that real justice can only be founded on the property rights of individuals. …

National boundaries are only just insofar as they are based on voluntary consent and the property rights of their members or citizens.

Irrepressible Rothbard, p. 230

One of the great swindles behind the idea of “collective security against aggression,” as spread by the “inter-nationalist”-interventionists of the 1920s and ever since, is that this requires us to regard as sacred all of the national boundaries which have been often imposed by aggression in the first place. Such a concept requires us to put our stamp of approval upon the countries and territories created by previous imperial aggression.

Libertarian Forum v. 1, p. 45

Political boundaries of nations may be important for other reasons, but they have no economic meaning whatever.

Making Economic Sense, p. 356

… governments cannot be assumed to be innocent individuals possessing just property rights in their territory. Government boundaries are not productive acquisitions, as is private property. They are almost always the result of previous aggressions and coercion by governments on both sides. We cannot assume that every existing state has the absolute right to “own” or control all the territory within its generally arbitrary borders.

Making Economic Sense, p. 393

BUREAUCRACY

… there is nothing more important to a bureaucrat and his organization than their income.

Libertarian Forum v. 2, p. 765

… bureaucratic opportunists and unprincipled technicians and would-be technicians find it difficult to engage in any sort of reasoned argument. Argument means principle, and principle is precisely what opportunists are always weak on.… What bureaucrats and power elites always want is for the opposition to shut up and go away, to obey orders, to accept their assigned tasks.

Libertarian Forum v. 2, p. 970

Bureaucracy, incompetent enough to plan a stationary system, is vastly more incompetent at planning a progressive one.

Man, Economy, and State with Power and Market, p. 961

… the State erects a bureaucracy whose living is acquired by feeding off the confiscation of one group and the encouraged mendicancy of another.

Man, Economy, and State with Power and Market, p. 1319

BUSINESS CYCLE

… inflation is not the only unfortunate consequence of governmental expansion of the supply of money and credit. For this expansion distorts the structure of investment and production, causing excessive investment in unsound projects in the capital goods industries. This distortion is reflected in the well-known fact that, in every boom period, capital goods prices rise further than the prices of consumer goods. The recession periods of the business cycle then become inevitable, for the recession is the necessary corrective process by which the market liquidates the unsound investments of the boom and redirects resources from the capital goods to the consumer goods industries. The longer the inflationary distortions continue, the more severe the recession-adjustment must become.

America’s Great Depression, p. xxvii

We may, therefore, expect specific business fluctuations all the time. There is no need for any special “cycle theory” to account for them. …

The problem of the business cycle is one of general boom and depression; it is not a problem of exploring specific industries and wondering what factors make each one of them relatively prosperous or depressed.… What we are trying to explain are general booms and busts in business.

In considering general movements in business, then, it is immediately evident that such movements must be transmitted through the general medium of exchange—money.

America’s Great Depression, p. 6

The main problem that a theory of depression must explain is: why is there a sudden general cluster of business errors? This is the first question for any cycle theory. Business activity moves along nicely with most business firms making handsome profits. Suddenly, without warning, conditions change and the bulk of business firms are experiencing losses; they are suddenly revealed to have made grievous errors in forecasting.

… As a rule only some businessmen suffer losses at any one time; the bulk either break even or earn profits. How, then, do we explain the curious phenomenon of the crisis when almost all entrepreneurs suffer sudden losses? In short, how did all the country’s astute businessmen come to make such errors together, and why were they all suddenly revealed at this particular time? This is the great problem of cycle theory.

America’s Great Depression, p. 8

In the purely free and unhampered market, there will be no cluster of errors, since trained entrepreneurs will not all make errors at the same time. The “boom-bust” cycle is generated by monetary intervention in the market, specifically bank credit expansion to business.

America’s Great Depression, p. 9

… we cannot apply the “business cycle” label to any processes of the free market. Irregular fluctuations, in response to changing consumer tastes, resources, etc., will certainly occur, and sometimes there will be aggregate losses as a result. But the regular, systematic distortion that invariably ends in a cluster of business errors and depression—characteristic phenomena of the “business cycle”—can only flow from intervention of the banking system in the market.

America’s Great Depression, pp. 35–36

The underconsumption theory cannot explain the cluster of errors in the crisis.

America’s Great Depression, p. 58

If underconsumption were a valid explanation of any crisis, there would be depression in the consumer goods industries, where surpluses pile up, and at least relative prosperity in the producers’ goods industries. Yet, it is generally admitted that it is the producers’, not the consumers’ goods industries that suffer most during a depression. Underconsumptionism cannot explain this phenomenon.… Every crisis is marked by malinvestment and undersaving, not underconsumption.

America’s Great Depression, pp. 59–60

Another popular theory attributes business cycles to alternating psychological waves of “overoptimism” and “overpessimism.” This view neglects the fact that the market is geared to reward correct forecasting and penalize poor forecasting. Entrepreneurs do not have to rely on their own psychology; they can always refer their actions to the objective tests of profit and loss. Profits indicate that their decisions have borne out well; losses indicate that they have made grave mistakes. These objective market tests check any psychological errors that may be made.

America’s Great Depression, p. 80

… the artificial holding down of the bank loan rate below the profit rate will stimulate an excessive borrowing, artificially high levels of investment, and a continuing monetary and price inflation.

Classical Economics, p. 177

… the boom begins with the excessive investment of savings in fixed capital.… Too many money savings are poured into the production of fixed capital, whereas too few are used to produce consumer goods. In short, the boom is characterized by an undue shift of resources from consumption goods to capital goods.… But as the consumers come to spend their wages on a lower supply of consumer goods, the price of consumer goods will inevitably rise. In short, consumption and investment have become excessive in relation to the savings available. In response to the rising prices of consumer goods, consumer goods producers will attempt to expand output and thereby increase their demand for capital, i.e., their demand for loans.… During the depression, excessive investment is abandoned, resulting eventually in recovery to a sound and normal condition.

… the boom is the economic distortion that necessarily generates the unhappy but curative depression that finally restores a sound economy.

Classical Economics, p. 261

The most obvious and blatant problem with an underconsumptionist theory of economic crises is that it explains too much. For if the consumption of the masses is never enough to buy back the product and keep business profitable, why is there no permanent depression? Why are there booms as well as busts?

Classical Economics, p. 429

… underconsumption is a totally flawed theory, whether used to explain cyclical crises or permanent depressions … as in the case of every crazy theory, the price system quietly drops out of the picture, and we are left with such aggregative juggernauts as “production” and “consumption” facing each other. There is no such thing as overproduction; there is only too much produced for the price that consumers are willing to pay, a price which, in crises, does not cover the costs incurred by businessmen. But, once we recognize that, we must then also see that, in order to bring production and consumption into balance, in order to eliminate the problem of supply, or stock, being greater than demand, all that need happen is for prices to fall. Let prices fall, and they will soon equilibrate supply and demand, and business losses will only be temporary.

Classical Economics, p. 430

… crises invariably begin, not in the consumer goods industries that underconsumptionism would lead us to expect, but precisely in capital goods industries, and in those industries farthest and most remote from the consumer. The problem it would seem—correctly—is too much rather than too little consumption.

Classical Economics, p. 430

… the business cycle phenomenon, the recurring alternations of boom and bust with which we have become all too familiar, cannot occur in a free and unhampered market … expansion of bank money causes an artificial lowering of the rate of interest, and an artificial and uneconomic overinvestment in capital goods: machinery, plant, industrial raw materials, construction projects. As long as the inflationary expansion of money and bank credit continues, the unsoundness of this process is masked, and the economy can ride on the well-known euphoria of the boom; but when the bank credit expansion finally stops, and stop it must if we are to avoid a runaway inflation, then the day of reckoning will have arrived. For without the anodyne of continuing inflation of money, the distortions and misallocations of production, the overinvestment in uneconomic capital projects and the excessively high prices and wages in those capital goods industries become evident and obvious. It is then that the inevitable recession sets in, the recession being the reaction by which the market economy readjusts itself, liquidates unsound investments, and realigns prices and outputs of the economy so as to eliminate the unsound consequences of the boom. The recovery arrives when the readjustment has been completed.

Economic Controversies, pp. 236–37

… depressions are never caused by “underconsumption” …

Economic Controversies, p. 558

… the Austrian theory of the trade cycle reveals that only the inflationary bank credit expansion that enters the market through new business loans (or through purchase of business bonds) generates the over-investment in higher-order capital goods that leads to the boom-bust cycle.

Economic Controversies, p. 737

… inflationary bank credit can only lead to a destructive boom-bust business cycle.… Any bank credit expansion in commercial loans is sufficient to generate the business cycle, whether a central bank exists or not.

Economic Controversies, pp. 880–81

… the “over-investment” is caused by continuous monetary inflation by the banks …

Economic Controversies, p. 917

… “general economic theory” teaches us that supply and demand always tend to be in equilibrium in the market and that therefore prices of products as well as of the factors that contribute to production are always tending toward some equilibrium point. Even though changes of data, which are always taking place, prevent equilibrium from ever being reached, there is nothing in the general theory of the market system that would account for regular and recurring boom-and-bust phases of the business cycle.

Economic Depressions: Their Cause and Cure, p. 14

… a theory of depression must account for the mammoth cluster of errors which appears swiftly and suddenly at a moment of economic crisis, and lingers through the depression period until recovery.

Economic Depressions: Their Cause and Cure, pp. 18–19

… booms and busts are much more intense and severe in the “capital goods industries”—the industries making machines and equipment, the ones producing industrial raw materials or constructing industrial plants—than in the industries making consumers’ goods. Here is another fact of business cycle life that must be explained—and obviously can’t be explained by such theories of depression as the popular underconsumption doctrine: That consumers aren’t spending enough on consumer goods. For if insufficient spending is the culprit, then how is it that retail sales are the last and the least to fall in any depression, and that depression really hits such industries as machine tools, capital equipment, construction, and raw materials?

Economic Depressions: Their Cause and Cure, p. 19

… the business cycle is brought about, not by any mysterious failings of the free market economy, but quite the opposite: By systematic intervention by government in the market process. Government intervention brings about bank expansion and inflation, and, when the inflation comes to an end, the subsequent depression-adjustment comes into play.

Economic Depressions: Their Cause and Cure, p. 28

Without bank credit expansion, supply and demand tend to be equilibrated through the free price system, and no cumulative booms or busts can then develop.

Economic Depressions: Their Cause and Cure, p. 30

A lower rate of interest on the free market is a good sign because it reflects a lower rate of time preference, and hence increased savings and capital investment. But any attempt to force a lower interest rate than that reflecting such voluntary savings causes incalculable damage and leads to depressions in the business cycle. Trying to lower the interest rate and expecting good results is very much like trying to raise the heat in a room by forcing up the thermometer.

Egalitarianism as a Revolt Against Nature, p. 216

… there is no reason to expect boom-bust cycles in the overall economy. In fact, there is reason to suspect just the opposite; for usually the free market works smoothly and efficiently …

For a New Liberty, p. 229

As “Austrian” business cycle theory has pointed out, any bank credit inflation sets up conditions for boom-and-bust …

History of Money and Banking in the United States, p. 94

… the importance of the Hayek theory of the business cycle is that it puts the blame for the boom-bust cycle squarely on the shoulders of the government and its controlled banking system, and, for the first time since the classical economists of the nineteenth century, completely absolves the free-enterprise economy from the blame. When the government and its central bank encourages the expansion of bank credit, it not only causes price inflation, but it also causes increasing malinvestments, specifically unsound investments in capital goods and underproduction of consumer goods. Hence, the government-induced inflationary boom not only injures consumers by raising prices and the cost of living, but also distorts production, and creates unsound investments. The government is then faced repeatedly with two basic choices: either stop its monetary and bank credit inflation, which then will necessarily be followed by a recession which serves to liquidate the unsound investments and return to a genuinely free-market structure of investment and production; or continue inflating until a runaway inflation totally destroys the currency and brings about social and economic chaos.

Libertarian Forum v. 1, p. 516

… bringing down the interest rate by government coercion lowers it below the true, “time preference” rate, thereby causing vast dislocations and distortions on the market.

Making Economic Sense, p. 171

… Austrian cycle theory always survives to bury its enemies.

Making Economic Sense, p. 264

The boom-bust cycle began in the eighteenth century with the beginnings of central banking, and has spread and intensified ever since, as central banking spread and took control of the economic systems of the Western world. Only the abolition of the Federal Reserve System and a return to the gold standard can put an end to cyclical booms and busts …

Making Economic Sense, p. 293

The fundamental insight of the “Austrian,” or Misesian, theory of the business cycle is that monetary inflation via loans to business causes overinvestment in capital goods, especially in such areas as construction, long-term investments, machine tools, and industrial commodities. On the other hand, there is a relative underinvestment in consumer goods industries. And since stock prices and real-estate prices are titles to capital goods, there tends as well to be an excessive boom in the stock and real-estate markets.

Making Economic Sense, p. 319

… boom-bust cycles are caused, not by mysterious defects inherent in industrial capitalism, but by the unfortunate inflationary bank credit expansion propelled by central banks.

Making Economic Sense, p. 447

… there can be no business cycle on the free market.

Man, Economy, and State with Power and Market, p. 856

The cluster of error suddenly revealed by entrepreneurs is due to the interventionary distortion of a key market signal—the interest rate.

Man, Economy, and State with Power and Market, p. 1000

Credit expansion always generates the business cycle process …

Man, Economy, and State with Power and Market, p. 1003

Business cycles are caused by the governmental intervention of bank-credit expansion.

Man, Economy, and State with Power and Market, p. 1299

… every business cycle is marked, and even ignited, by inflationary expansions of bank credit.… bank credit expansion raises prices and causes a seeming boom situation, but a boom based on a hidden fraudulent tax on the late receivers of money. The greater the inflation, the more the banks will be sitting ducks, and the more likely will there be a subsequent credit contraction touching off liquidation of credit and investments, bankruptcies, and deflationary price declines.

Mystery of Banking, p. 103

Fractional reserve banking has given rise to a boom and bust business cycle.

Mystery of Banking, p. 114

… whenever the newly issued money is first used as loans to business, inflation causes the dread “business cycle.”

What Has Government Done to Our Money?, p. 55

BUSINESSMEN

In the market economy, one of the most vital functions of the businessman is to be an “entrepreneur,” a man who invests in productive methods, who buys equipment and hires labor to produce something which he is not sure will reap him any return. In short, the entrepreneurial function is the function of forecasting the uncertain future. Before embarking on any investment or line of production, the entrepreneur, or “enterpriser,” must estimate present and future costs and future revenues and therefore estimate whether and how much profits he will earn from the investment. If he forecasts well and significantly better than his business competitors, he will reap profits from his investment. The better his forecasting, the higher the profits he will earn. If, on the other hand, he is a poor forecaster and overestimates the demand for his product, he will suffer losses and pretty soon be forced out of the business.

Economic Depressions: Their Cause and Cure, pp. 15–16

Businessmen and other producers direct their energies, on the free market, to producing those products which will be most rewarded by the consumers …

Egalitarianism as a Revolt Against Nature, p. 135

Only the actual entrepreneur, through the give and take of the market, can decide where the maximum-profit size is and can set the firm at that point. This is the task of the businessman and not of the economist.

Man, Economy, and State with Power and Market, p. 598

… the free-market process precisely rewards those businessmen who are equipped to make a minimum number of errors.

Man, Economy, and State with Power and Market, p. 853

Businessmen … can either be genuine free enterprisers or statists; they can either make their way on the free market or seek special government favors and privileges. They choose according to their individual preferences and values.

Wall Street, Banks, and American Foreign Policy, p. 1

• 1Conceived in Liberty was originally published in four individual volumes, the first page number reflects these editions. The four volumes, in 2011, were combined into one large edition, the second page number reflects the all-in-one edition.