Quote of the Day

“The downturn phase of an Austrian cycle is often misunderstood — even by some of its proponents — as necessarily involving a reduced rate of monetary expansion. In fact it comes about as the result of the return of real interest rates to their “natural” levels, which is inevitable no matter how rapidly nominal money and credit grow. The return is a result of credit demand catching up to supply in consequences of rising prices, of goods generally perhaps but especially of factors of production. It follows that you don’t have to have a gold standard or other nominally-constrained monetary regime to have an Austrian cycle: resort to fiat money doesn’t suffice to allow authorities to keep a boom going forever. Indeed, I think that in some respects the Austrian theory fits 2001-2009 better than it fits 1924-1933. (I hasten to add that in both cases tight money made the downturns far worse than the Austrian payback story alone could account for.)”

— George Selgin, in the comments on Scott Sumner’s blog. (I have tried to make this case to Austrians for months without success.)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s