Full Employment, Cycles, Etc

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    Mr. Herbener,

    Where can I find empirical evidence that in the absence of interference in the credit and labor markets, markets tend toward full employment and higher wages? That there isn’t a business cycle until credit is interfered with.

    I’m aware of several instances when the suspension of specie payments or Fed behavior led to problems, but do we have anything to look to as concrete evidence that things would be stable if markets were left free?

    Thank you


    Take a look at the laissez-faire policies of the Harding administration during the downturn of 1920-1921 compared to the interventionist policies of Hoover and Roosevelt during the downturn of 1929-1933.



    Thanks to Dr. Woods, I have learned about that. And I’m not disputing that, but do we have any additional periods that attest to that? From a devil’s advocate position, I can see people saying, “that’s not even a five year period. How is that conclusive?”.

    Also, do you think it’s possible that the reason for that prosperity here is because Europe was in shambles as a result of the interventionists’ war?


    History is complex and so determined opponents can always find alternative explanations that they consider plausible. Very rarely are there historical cases that prove to knockdown all opposition. That’s why finding cases in which several plausible factors are similar is helpful. Hans Hoppe refers to this in comparing the economic performance of East Germany v. that of West Germany as demonstrating the superiority of a freer market system.


    By extension, the comparison between the downturns of 1920-21 and 1929-1933 have a similar advantage as historical evidence.

    One could point to the experience of Western economies in the 19th century, which experienced panics instead of depressions, the latter of which involved serious unemployment. The U.S. economy did not experience severe unemployment in a downturn until the depression of 1894. Bob Higgs, in his book Crisis and Leviathan, argues that the rise of labor union violence against private property contributed to the problem.

    The colonial period in America experienced remarkable economic progress largely free from boom and busts and unemployment. Even though Great Britain had a central bank and credit expansion, the British did not allow banking to develop in the American colonies. Murray Rothbard chronicles this in his multi-volume work, Conceived in Liberty.



    Fantastic! Thank you.


    Professor Herbener,

    Why is it that certain sectors get more artificially bloated than others during an inflationary boom?

    For example, why did labor have to come down in certain sectors to facilitate the movement of workers into the “correct one” during the Depression in order to have a correction?

    Is the manufacturing sector more sensitive to business cycles than others?

    Are there any good articles or lectures that go in depth in showing how recessions correct the problems caused by the artificially high cheap credit?

    Thank you!


    The most volatile sectors of the economy over the boom-bust cycle tend to be higher-order capital goods, mining and other extraction industries, for example. Prices of basic commodities vary more than basic consumer goods.

    The reason is that demand for raw materials increases disproportionately to the increases in demand for lower-order goods. Consider the following stylistic example. Suppose cheap credit during the boom stimulates demand for cars, which then increases demand for steel, which in turn increases demand for iron. Additionally, however, cheap credit makes the production of new auto factories and steel factories viable. But to produce more cars and more factories increases the demand for steel which increases the demand for iron. Finally, the demand for iron to produce non-steel products may also be increasing, or at least not decreasing.

    Of course, this is just a general tendency, one might find that cheap credit increases the demand for a particular consumer goods and thus it’s production more dramatically than the production of some unrelated higher-order good.

    Here are a few items:




    Professor Herbener,

    I recognize that this is not directly related to the coursework, but I have a somewhat odd request for suggestions for reading materials that I would very much appreciate if you could point me in the direction of.

    I plan to go to law school, and I really want to help businesses get out from under the boot of our government and to help them navigate the tax and regulatory codes. I am planning on going to Albany in New York State to get my undergrad in Financial Market Regulation…partly because it’s very interesting to me and partly because I want to learn how to work around the regulations to help businesses. But I know that it’s going to be an onslaught of indoctrination about the virtues and necessity of Keynesian tinkering. I’d like to go into it with a solid understanding of the Austrian view of the financial market regulations.

    Can you suggest any book(s)/literature that evaluates the main regulations in a comprehensive and substantive manner from an Austrian standpoint?

    As always, I greatly appreciate your time.


    Thank you!!


    What caused the recovery? How should one respond to people saying Obama got us out of the crisis?


    Recovery from a bust does not occur until entrepreneurs return to normal investment activity. Longer, drawn-out recessions or depressions (like the Great Recession or Great Depression) are characterized by a dearth of investment and the build-up of cash holdings.

    The Obama administration, like that of FDR, adopted policies that aggravated the problem. Take a look at the work of Robert Higgs:



    The unprecedented policies of fiscal and (esp.) monetary expansion under Obama generated uncertainty that suppressed investment and retarded recovery. The official dating of the recovery to 2009 proved to be abortive (just as the “recovery” from 1934-1937) as GDP growth rates failed to cracked the 2% level for nearly a decade. In the so-called, slow-growth recovery the economy has been held back by a lack of investment.


    Interesting parallels. Where would one go to measure investment spending? What’s the metric?

    Thank you as always!





    I saw an article on Drudge trying to say that the latest record jobs report is due to the tax cuts. How can we explain the fact that it is a continuation of a trend started under Obama, as shown in the BLS graph below? What’s the cause of this, if not Obama’s bailouts and monetary expansions?



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