Freedom, Society, and State - Ludwig von Mises Institute

of tIme preference, the collapse came once the credit
ex pan s ion was h a I ted • T h us, the rna 1ad jus t men t s surfaced
the moment the Federal Reserve terminated its
easy money policies in mid-1929, and the depression
ensued.(68)
What are the policy implications of the Austrian
theory? According to the proponents of contra-cyclical
policies, government is supposed to stablilize the economy
by reducing taxes and increasing expenditures in
times of economic downturns in order to increase aggregate
spending and thus st imulate the economy. Conversely,
in times of economic boom, the government is
to increase taxes and reduce expenditures in order to
k e e p the e con 0 my from "0ve r hea ting • " I nth i s wa y, i t
is argued, the economy can be stabilized and permanent
prosperity and full employment maintained.(69)
The Austrians contend that such a policy will only
rna k e rna t ter s worse. I f the depress ion is the necessary
process of adjust ing to the malinvestments caused by
the preceding boom, and since the boom was a direct result
of government credit expansion, renewed expansion
can only postpone the inevitable and the process induce
fur the r mal i n v est men t s wh i c h wilIon 1y rna ke the r e ­
adjustment process, which must ultimately come, even
more severe. Once again, the Great Depression illustrates
this point. The deficit financing of the Hoover
and Roosevelt Administrations, as well as other policies
of public works, subsidies, price supports, minimum
wages, etc., argue the Austrians, obstructed the
adjustment process and hence needlessly prolonged the
depression.
The Austrian prescription is both simple and quite
congenial to the individualist anarchist. The governmen
t s h 0 u Idstop i n f I a ting i mm e d i ate 1y and then rem0 ve
all forms of intervention. This will permit the admittedly
painful adjustment process to be completed in the
shortest time. After that, the government should stay
completely out of the economy and refrain from any type
o fer e d i t man i p u I a t ion. 1fthis isaccom pI ished, the
Au s t ria n s bel i eve t hat e con om i c pr os per i t y wou I d be
assured and economic development would proceed at a
fairly even, gradual pace.
7. GOVERNMENT AND TAXATION
It is generally assumed that to survive all governments
must tax, and IndiVIdualist anarchists have
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