Economic Depressions: Their Cause and Cure by Murray N.

Rothbard

A book that delves into the Austrian School of Economics' perspective on the causes and potential
remedies for economic depressions. Rothbard explores the Austrian Business Cycle Theory (ABCT) as a
framework for understanding the business cycle, arguing that economic downturns are not inherent
failures of the free-market system but are instead a result of government interventions, particularly in
the form of credit expansion.

Key Points:
1. Austrian Business Cycle Theory (ABCT):
Rothbard introduces and explains the ABCT, which posits that fluctuations in the business cycle are
caused by government manipulation of credit and interest rates. The theory emphasizes the
misallocation of resources during economic booms and the subsequent need for a correction.

2. Government Interventions:
Rothbard analyzes the mainstream view that economic depressions are the result of market failures.
Instead, he argues that government interventions, particularly in monetary policy, disrupt the natural
balance of savings and investment, leading to distortions in the economy.

3. Malinvestments:
The book discusses how artificially low interest rates during the boom phase encourage malinvestments,
investments that would not occur in a free-market scenario. These malinvestments become apparent
during the bust phase, leading to an economic downturn.

4. Market Correction:
Rothbard advocates for a laissez-faire approach during economic depressions, asserting that the market
has a natural ability to correct itself. He argues against government interventions such as bailouts and
stimulus packages, which he believes only, delay the necessary correction process.

5. Sound Money:
The author emphasizes the importance of a sound monetary system, suggesting a return to a gold
standard or a system that prevents central authorities from manipulating money and interest rates. A
stable monetary system, according to Rothbard, would prevent the artificial credit expansion that leads
to malinvestments.

6. Limited Government:
Rothbard proposes a limited role for government in economic affairs during depressions, arguing that
government interventions exacerbate economic problems rather than solving them. He contends that
short-term pain is necessary for long-term stability and sustainable economic growth.

Overall, "Economic Depressions: Their Cause and Cure" offers a theoretical exploration of the Austrian
School's perspective on economic cycles, providing insights into the roots of economic downturns and
suggesting a limited-government, free-market approach as a solution.
1. What is the central theme of Murray N. Rothbard's book "Economic Depressions: Their Cause and
Cure"?

a. Analysis of international trade

b. Exploration of Keynesian economics

c. Causes and remedies for economic depressions

d. History of monetary policy

Answer: c. Causes and remedies for economic depressions

2. According to Rothbard, what does the Austrian Business Cycle Theory (ABCT) primarily focus on?

a. Fiscal policy

b. Credit expansion

c. Labor markets

d. Government regulation

Answer: b. Credit expansion

3. What role does artificial credit expansion play in the Austrian Business Cycle Theory?

a. Stabilizing the economy

b. Creating sustainable growth

c. Leading to malinvestments

d. Minimizing government intervention

Answer: c. Leading to malinvestments

4. Rothbard argues that economic depressions are primarily caused by:

a. Market failures

b. Government interventions

c. Consumer behavior

d. Global trade imbalances

Answer: b. Government interventions

5. What is the consequence of malinvestments during the boom phase, according to Rothbard?

a. Economic prosperity

b. Sustainable growth

c. Bust or economic downturn

d. Government stability

Answer: c. Bust or economic downturn

6. Rothbard suggests that during an economic depression, the market correction process should be:

a. Hastened by government interventions

b. Delayed for long-term stability

c. Left to occur naturally

d. Managed by central banks

Answer: c. Left to occur naturally

7. According to Rothbard, what is the impact of government bailouts during economic depressions?

a. Accelerating market corrections

b. Preventing malinvestments

c. Prolonging necessary corrections

d. Enhancing economic stability

Answer: c. Prolonging necessary corrections

8. How does Rothbard view the role of government in addressing economic depressions?

a. Active intervention

b. Limited involvement

c. Complete control

d. No role at all

Answer: b. Limited involvement

9. Rothbard proposes a return to what system to prevent the manipulation of money and interest
rates?

a. Socialist economy

b. Mixed economy

c. Gold standard

d. Mercantilist system

Answer: c. Gold standard

10. What, according to Rothbard, is the relationship between sound money and preventing economic
depressions?

a. No correlation

b. Sound money exacerbates depressions

c. Sound money prevents artificial credit expansion

d. Sound money accelerates malinvestments

Answer: c. Sound money prevents artificial credit expansion

11. Rothbard suggests that a laissez-faire approach during economic depressions entails:

a. Intervening in the market

b. Allowing the market to naturally correct itself

c. Implementing protectionist policies

d. Increasing government spending

Answer: b. Allowing the market to naturally correct itself

12. How does Rothbard view short-term pain during an economic depression?

a. As necessary for long-term stability

b. As a sign of market failure

c. As an indication of successful government intervention

d. As a reason for more government control

Answer: a. As necessary for long-term stability

13. According to Rothbard, what is the primary downside of government interventions in the
economy?

a. Accelerating economic growth

b. Prolonging necessary market corrections

c. Ensuring long-term stability

d. Minimizing the role of central banks

Answer: b. Prolonging necessary market corrections

14. What is Rothbard's stance on the effectiveness of stimulus packages during economic
depressions?

a. Highly effective

b. Ineffective

c. Moderately effective

d. Essential for economic recovery

Answer: b. Ineffective

15. Rothbard critiques mainstream economic theories and policies, advocating for a reevaluation of
the role of:

a. Entrepreneurs

b. Government

c. Consumers

d. Labor unions

Answer: b. Government

16. In Rothbard's perspective, what is the relationship between government interventions and
economic stability?

a. Positive correlation

b. Negative correlation

c. No correlation
d. Random correlation

Answer: b. Negative correlation

17. What does Rothbard consider as the primary cause of market distortions during economic
depressions?

a. Consumer preferences

b. Natural market fluctuations

c. Government interventions

d. Technological advancements

Answer: c. Government interventions

18. Rothbard proposes a sound monetary system to prevent the manipulation of:

a. Interest rates

b. Exchange rates

c. Tax rates

d. Inflation rates

Answer: a. Interest rates

19. What does Rothbard advocate for regarding the role of government during economic depressions?

a. Increased intervention

b. Limited intervention

c. Complete absence of government

d. Indiscriminate intervention

Answer: b. Limited intervention

20. According to Rothbard, what is the consequence of government manipulation of interest rates
during the boom phase?

a. Sustainable growth

b. Balanced market conditions

c. Malinvestments

d. Efficient resource allocation

Answer: c. Malinvestments