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The Anatomy of an Economic Crisis: Money, Prices, and Economic Order

In: F. A. Hayek

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  • Peter J. Boettke

    (George Mason University
    George Mason University)

Abstract

What would Hayek have to say about financial crises and the Great Recession? In the mind of the public policymakers, the Great Recession constituted the most serious challenge to free market ideas since the Great Depression. The bust of the housing bubble led to a financial market crash, which in turn led to a severe economic downturn. Markets seemed to have failed. Our analysis of the causes of the crisis and the policy response must rely on some theoretical framework. The consensus of policymakers around the world converged on a Keynesian understanding of the macroeconomy while the Hayekian alternative was unfortunately ignored. Hayek developed a theory of the trade cycle in which loose monetary policy generates a boom, followed by a bust caused by the economic reality of scarce resources.

Suggested Citation

  • Peter J. Boettke, 2018. "The Anatomy of an Economic Crisis: Money, Prices, and Economic Order," Great Thinkers in Economics, in: F. A. Hayek, chapter 3, pages 37-76, Palgrave Macmillan.
    • Handle: RePEc:pal:gtechp:978-1-137-41160-0_3
    DOI: 10.1057/978-1-137-41160-0_3
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