Read Mises: Financial Crises are Predictable – and Preventable

Central Economic Planning at its Worst

by Ron Paul

Last week, the Financial Crisis Inquiry Commission (FCIC) presented its results to the Financial Services Committee. As with most other politically-appointed commissions, the results of the FCIC’s investigation were easy to predict. Established by the same congress that gave us national healthcare and with a majority of its members appointed by those who seek to solve every problem with more government intervention, it was no surprise that the commission’s findings would favor increased government intervention in the economy. Minority members were not substantively involved in the commission’s operations, and the commission attempted to exclude their dissenting views by granting them very limited space to do so.

However, even the minority members of the commission failed to consider the most important cause of the financial crisis, namely the Federal Reserve’s loose monetary policy. Almost a century ago, in 1912, Ludwig von Mises published his great work The Theory of Money and Credit. This was the first systematic description of Austrian Business Cycle Theory (ABCT), which explains the origins of the business cycle in monetary expansion. This theory explains why so many businessmen make so many of the same errors at the same time. Yet not a single member of the commission undertook an analysis of the financial crisis from an Austrian economic viewpoint.

Instead, blame was placed on failures in financial regulation and corporate governance, excessive borrowing and risky investments, and expansion of subprime lending, among other factors. But none of these explanations can answer why this crisis occurred. Why was there excessive borrowing? Why was there an explosion of subprime lending? Why were there failures in corporate governance? Why did virtually no one except Austrian economists see this coming?

Without the Federal Reserve’s massive expansion of credit throughout the 1990s and early 2000s, there could have been no excessive borrowing or explosion of subprime lending. Through easy credit, the Fed initiated the economic boom that created the dot-com bubble. When that bubble burst the Fed pumped additional liquidity into the system, which led to a new boom that created the housing bubble. And now the Fed’s additional trillions of dollars in monetary pumping is creating yet another bubble. This is the exact opposite of stability in the marketplace and has nothing to do with free markets. It is central economic planning at its worst.

It is imperative that the historic record accurately reflect what actually happened. In the popular press we see columnists attempting to blame the financial crisis on the “small-government,” “free-market” policies of President Bush. Hundreds of billions of dollars in stimulus payments, a $700 billion bailout program, and trillions of dollars of Federal Reserve credit facilities hardly represent small-government and free-market principles in action! On the contrary, these government interventions by both major parties demonstrate quite clearly our nation’s acceptance of crony capitalism.

Schoolchildren today are taught the myth that Herbert Hoover was a small-government President who did nothing to stop the Depression, while the truth is exactly the opposite. Fed Chairman Bernanke failed to understand the true cause of the Great Depression, so his policy prescriptions to combat the current crisis are understandably flawed. Unless we confront and correct false economic rhetoric, truly understand the causes of the economic crisis, and do away with our loose monetary policy, we will find ourselves in ever more vicious business cycles.

  • miserkocho

    i try hard to find something that would prove my assumption about all politicians applies to ron paul.after this video,i dont think i’ll bother anymore.if ludwig von mises was in fact ,one of the most influential people during the 20th century,we wouldnt be in this mess…
    in regards to comments below and their channels,who really devotes all their time on youtube opposing one point of view??? a shill,thats who..be scared shill,ron paul 2012!!!go u good thing!!

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  • http://www.youtube.com/profile?user=PonsXAsinorum PonsXAsinorum

    he’d just get assassinated i’m afraid.

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  • tj

    It really is that simple…all financial difficulties can be summed up this way…too much consumption with too little production…the invisible hand of free market capitalism works perfectly to prevent overconsumption
    unfortunately, the central planners in the fed, the white house, and the congress have tied the Invisible Hand so tightly that today it is broken…when a segment of society chooses to consume more than it produces, the untied Invisible HAnd will raise interest rates to appropriate levels to slow down such consumption and encourage more savings and investment
    the Invisible Hand is broken…we need Dr. Paul to heal it….by shutting down the Federal Reserve and allowing interest rates to rise in order to encourage wealth creation over wealth consumption…

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  • http://www.youtube.com/profile?user=ProgressiveInAmerica ProgressiveInAmerica

    The only far left liberals here are Ron Poop and his son Iran Paul!

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  • http://www.youtube.com/profile?user=Moragauth Moragauth

    No, that’d be left-“liberals”.

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  • electronicado86

    The Theory of Money and Credit is simply the most important book of the twentieth century !

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  • MidasTitus

    Our country’s history is such a jumbled mess. Candy-coating the dark parts of history only perpetuates the same problems. Thank you Dr. Paul for constantly exposing the truth and asking questions that truly matter.

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  • TheAnarchoCapital

    ..It’s the boom that should make you feel leery that’s the thrust of my theory..

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  • ProgressiveInAmerica

    Ron Paul smells like fresh poo in a porta potty

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  • http://www.youtube.com/profile?user=garrethdavis garreth davis

    I can’t wait to see him in the White House.

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  • garrethdavis

    I can’t wait to see him in the White House.

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  • MyFishyWishy

    Ron Paul is a hippie..hippies do not register to vote (they trust in God) .He will never have a chance (see Donald Trump admitting politics is about money)…Even if hippies voted they could not afford the 100 million dollars to afford to convince the non hippies that he will be the best president with propaganda campaigns.
    You are and always will be controlled by the non hippies with voting licensees until hippies get them.

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  • panjok2

    Join us on facebook for the gas boycott on March 3, 2011….search BOYCOTT GAS on facebook and use the invite tab to invite all your friends! Lets at least stand together on one issue we all agree on and that is THE GAS IS TOO DAMN HIGH!!!! I am asking you as one poor American to another for you to stand with me and my friends!
    I am so tired of being bleed dry by lower wages and ever increasing costa for basic things like gas! PLEASE JUST STAND UNITED FOR THIS ONE THING!

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  • 923TARA

    RON PAUL is the only sane person in government these days. That was a wonderful concise explanation of the mess we are now in with strangers telling us how to live on one hand while playing takeway with the other

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  • 923TARA

    RON PAUL is the only sane person in government these days. That was a wonderful concise explanation of the mess we are now in with strangers telling us how to live on one hand while playing takeway with the othe

    Like or Dislike: Thumb up 1 Thumb down 0

  • worldnewsbbc1

    Ron Paul is from Texas so he should know that the banks in Texas fared better during the meltdown because they were more heavily regulated. Google “The Lone Star Secret” and you will find an article that explains how after the S&L meltdown hit Texas hard in the late 80s, Texas put the brakes on “cash-out” refinancing and home-equity lending. As a result, sub-prime defaults are lower in Texas than any state except Alaska. Deregulation and lax enforcement played a major role in the melt down.

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    • tj

      With all due respect, you are wrong. The only regulation needed is the Invisible Hand of free market capitalism. The cause of the financial crisis in the USA was a direct result of interest rates that were kept too low and the mandate placed on banks to loan money to poor minorities (Community Reinvestment Act).
      Now, please understand, those that borrowed were not at fault. They were acting rationally. The opportunity to own a home at low interest rates was worth taking the risk. However, that Invisible Hand is merciless. High interest rates and the requirement of being credit worthy, would have prevented the high number of foreclosures from occurring…financial disaster would have been averted while real wealth creation would have occurred.

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  • msungs

    The Federal Reserve as “Federal” as Federal Express assassinated President Kennedy when he tried to print the debt free United States Note. Central banks have also killed President Garfield, and Lincoln (after Lincoln printed the debt free Greenback), and they have also tried to kill Andrew Jackson (who was opposed to a central bank). The Central Bank is the enemy of freedom and most be stopped at all costs and by all means available. If something happens to Ron Paul I will personally respond.

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  • RonPaulforpresident1

    everyone sign the petition at the site

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  • RonPaulforpresident1

    Run for president Ron we support and we the american people love you! i rate this video up and to the idiot that rated this video down you must like being raped of your money by the government

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  • RandallSteen

    The seeds of liberty grow by their own volition, because its life is a gift from God. It prospers through our care or withers through our neglect, but we cannot claim its creation. The tree need not be watered with the blood of patriots and tyrants, for liberty is the spirit and image of life itself and is immutable. Therefore you cannot profit liberty by destroying life. You profit liberty by caring for its growth. God bless us and prosper our industry.

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