March 23, 2011 Reading Time: < 1 minute

“Why is the American economy plagued by recessions?

The simplest way to answer this question is to focus our attention on individuals. Once we know why individual businessmen experience economic setbacks, we will have the key to understanding why the entire economy intermittently goes through periods of recession.

A businessman suffers heavy losses when he has seriously erred in estimating his future costs and/or his future revenues. And it is always true that some business ventures will fail. But during a recession large numbers of businessmen—sometimes a vast majority—find they have seriously erred in estimating future conditions. Why are so many hitherto successful businessmen suddenly simultaneously in error?

Critics of capitalism assert that recessions are caused by free enterprise. But when pressed on the matter, these critics can never find anything in the free market that would cause vast numbers of businessmen to simultaneously err. The cause of such widespread business error—and thus the cause of recessions—must be found outside the market economy.” Read more

“Easy Money: Prelude to Recession” 
Brian Summers 
The Freeman, May 1977, Vol. 27, Issue 5. 
Via the Foundation for Economic Education. 

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Tom Duncan

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