Comment on Hillock's "Why Austrians Are Wrong About Depressions"

L et me preface my comment with the following caveat: I am skeptical of the value of a scholarly journal article that attempts to critically evaluate the "canonical version" of an economic theory, particularly when the theory in question deals with a phenomenon as complex as the business cycle. Added to this is my uneasiness over the fact that the version that is chosen for criticism (Rothbard [1969]) was intended as a popular exposition of the theory. This hardly does justice to the profundity of the Austrian theory of the business cycle or to the scholarship of Murray N. Rothbard. If one wishes to pen a brief critique of the general thrust of Austrian cycle theory, it is more appropriately done as an explicit book review, say, of an anthology such as Mises et al. (1983). Having expressed these reservations, I proceed with my comment. The three nits that Tullock picks at the beginning of his article in The Review of Austrian Economics, volume 2 (pp. 73—74), deserve comment because they bear out the concerns I mentioned in the preceding paragraph. First, the author correctly notes that, in the particular pamphlet under review, "Rothbard never explains why the inflation which is part of his theory cannot simply be continued or even accelerated." But, of course, this question is dealt with in many advanced expositions of Austrian cycle theory. As one of numerous examples, Rothbard (1970, volume 2, pp. 875-77), himself, addresses the issue under the heading of "The Ultimate Limit: The Runaway Boom." Moreover, Hillock's personal testimony that hyperinflation "is undeniably unpleasant, but not really a disaster" (p. 73), while certainly provocative, is irrelevant with respect to this issue. It is sufficient that the political and monetary authorities who orchestrate the inflationary boom fear the eventuality of hyperinflation and act to prevent it. Thus, for instance, the proximate cause of the 1980-82 U.S. depression was the well-publicized decision of the Volcker Fed to "disinflate" the economy from highly unpopular double-digit inflation levels by reining in the growth of money and bank credit. The author's second nit (p. 73) concerns Rothbard's alleged failure to come to grips with the question of why entrepreneurs do not eventually learn about,