What are Business Cycles?
Are they natural expansions and contractions of the economy? or are they exploitative
machinations of the Money Trust? Who causes these cycles? Why? How do depressions,
recessions, crashes, and panics come about? These questions have bedeviled many experts;
apparently, without much success.
Origin of Economic Change. The "famous debate"
between the experts has best been framed by Galbraith as follows: "Where does
economic change originate?. . . Does money influence the economy or does money respond
to the economy?"1 [my emphasis].
Many theories, speculations, and prophecies about money have been advanced; the most
famous (or infamous) being Marx's theory of the trade cycle.2 Like it or not, much empirical
evidence does support aspects of Marx's theory. But this support does not in any way
justify totalitarian state control.
Marx and his followers were
clearly wrong: instead of confronting the evils of "Faustian money,"3 as embodied in the Legal Code, they
moved in the wrong direction. The Communist solution, first to expropriate all the net
advantages of Capitalists, then to concentrate these in a totalitarian regime (the
politburo and the Communist party) was absurd! (As discussed in Book I, the proper
solution would have been to eliminate all net advantages of Big Business and
Big Government -- over the Citizen, in the Legal Code.)
But what is "Faustian
money"? Most people think of money as the value of some commodity. By contrast, many
usurers think of money as "Faustian money" -- a mind tool to generate even more
money. Ironically, usury can often be achieved using other people's money. Of
course, "Faustian money" can be used to control and dominate people -- as
entrepreneurs, as borrowers, etc. Most important, it can be used to acquire things. For
Spengler, it is precisely this "acquisitive" characteristic that makes
the "dictatorship of money" possible.4
In The Decline of
the West, first published in 1918, Spengler, wrote: ". . . every Socialist
outbreak only blazes new paths for Capitalism."5 Spengler believed that even
Communists operated in the interest of money. He wrote: "There is no proletarian, not
even a Communist, movement that has not operated in the interest of money, in the
direction indicated by money and for the time permitted by money -- and that without the
idealist amongst its leaders having the slightest suspicion of the fact."6 In other words, the deception of "Faustian money" is absolute. The "electorate"
is nothing but an "object" to be manipulated by the "subject"
-- the Capitalist who thinks in money.7 What are the roots of this
deception? In his Preface to Spengler's The Decline, Arthur Helps provided the
following clues: "Marxism, based on a typically British poor man's hatred of the
rich, coupled with Jewish memories of the Old Testament curse on manual labour, was
adopted by Russia under an ardent misunderstanding."8 Apparently, the Russians were victimized.
Theory of the Trade Cycle. The theory of the trade
cycle has been reviewed and criticized by Karl Popper. Following Popper, the
exploitative mechanism of the trade cycle, can be highlighted as follows:9
- Capitalists increase their
investments -- productivity increases.
- Consumption increases.
- Unemployment increases.
- Destruction increases.
Consumption and capital goods are destroyed or not used -- productivity decreases.
Unemployment and destruction lead to "undesirable" effects, such as
"depression, the manufacture of armaments, and war."
of the Free Enterprise System have a different perspective. Hayek held that "the most
effective method for securing those services that can be priced" is the "market
mechanism."11 But Hayek also recognized
"that there are needs which the market does not satisfy." These must be handled
by the government. But what about the control of money? Unfortunately, and this has been
pointed out by Hayek, the control of money, which should be "as predictable as
possible," isn't.12 The danger comes, not from the free
marketplace, but from flawed monetary policy. If we do not "stop the inflationary
trend," Hayek warned, we risk "drift[ing] toward more and more state
control."13 Following Hayek, the dangers from a
flawed expansionist monetary policy can be summarized as follows:14
- Politicians opt for an
expansion of the economy -- an inflationary trend is initiated.
- The rise in prices
stimulates the economy.
- Saving is discouraged and
people run into debt. The middle class is destroyed. The gap between the
"propertyless" and the "wealthy" increases. The tensions in the
society increase. Society risks "more ominous. . . psychological effects" --
more and more people are exclusively concerned with "immediate advantages," at
the expense of the long term.
- Government control
increases. The risk of destroying "the foundations of a free society" increase.
For supporters of the Free
Enterprise System, the danger to freedom, then, stems from flawed Monetary Policy and
increased State Control. For others the danger stems from the Monopolistic Practices of
rapacious exploiters. Who's right? Who's wrong? The resolution of this "famous
debate" is the subject matter of this short Book.
John K. Galbraith, Money, 1975 and 1995, at 36-37 and 103-118.
2 See Karl Marx, Capital,
an abridged edition, edited with an Introduction by David McLellan, 1995. For a discussion
and critique of Marx's trade cycle, see Karl R. Popper, The Open Society and Its
Enemies, Vol. II, The High Tide of Prophecy: Hegel, Marx, and the Aftermath, 1962 and
expression; see Oswald Spengler, The Decline of the West, an abridged edition by
Helmut Werner, with a new Introduction by H. Stuart Hughes, 1991, at 97 and 403-407
(Thinking in Terms of Goods and in Terms of Money), 407-408 (Classical and Western
Money-Thought), 408 (Money and Work), and 409-415 (The Form-World of Economic Life: The
Machine); the English Abridged Edition was prepared by Arthur Helps, from the translation
by Charles Francis Atkinson.
4 Ibid., at
391-393 (The Fate of Democracy), especially 393 ("dictatorship of money"), 401
("producing" vs. "acquisitive" kinds of economy), and
403 ("acquisitive" vs. "creative" economics in the market).
5 Ibid., at
389-391 (Political Theory), especially 390.
6 Ibid., at
362-370 (The Bourgeoisie), especially 367.
Spengler, The Decline of the West, an abridged edition by Helmut Werner, with a new
Introduction by H. Stuart Hughes, 1991, at 408 (Money and Work).
8 Ibid., at
9 For an evaluation
of Marx's theory of the trade cycle, see Karl R. Popper, The Open Society and Its
Enemies, Vol. II, 1962 and 1966, at 193-198 (An Evaluation of the Prophecy),
10 Ibid., at
11 Friedrich A.,
Hayek, The Constitution of Liberty, 1960, at 125.
12 Ibid., at
324-339 (The Monetary Framework), especially 334.
13 Ibid., at
14 Ibid., at