Criterion 9: The Business Cycle

The economies of the world have gone through many cycles of prosperity and recession. Even the United States, which has had a steady increase of prosperity over two centuries, has had deep depressions between times of economic growth. A good treatment of this subject will try to explain why we have these ups and downs.

Here, some history is needed. The Great Depression and the events preceding it should be discussed, but a longer view is best, looking for common threads in earlier recessions and depressions. Economic phenomena don’t "just happen" and a good text will explore the work of experts to find plausible explanations. The views of the Keynesians, the Monetarists, and the Austrians should be presented and explained in some depth.

Many texts have something to say about the Great Depression. Several uncritically repeat the myths that President Hoover was a laissez faire president, that the depression was caused by free markets, and that President Franklin Roosevelt’s interventionist policies produced prosperity. These assertions have been revealed by subsequent scholarship to be little more than propaganda.

The truth is that government intervention may have caused the Depression, and almost certainly prolonged it. The 1920s and 1930s saw huge fluctuations in the nation’s money supply, fostered by Federal Reserve policy. There was a huge hike in tariffs in 1930 and a doubling of income-tax rates in 1932. Massive government intervention in the economy throughout the New Deal period failed to revive the economy. Running for president in 1932, the Democratic ticket of Roosevelt/Garner assailed the Hoover administration for "leading the country down the path to socialism" and promised a 25 percent reduction in federal spending, which it never subsequently delivered. All of these factors are believed to have contributed to the disaster, and should be presented to students and contrasted with the prevailing myth. (See Great Myths of the Great Depression.)

Economics texts should never present only Keynesian economic theories regarding the business cycle. Neither should they uncritically accept Keynes’ idea that spending determines national income.

Increasingly, it is apparent that the business cycle is not a mysterious phenomenon that befalls a hapless free economy, but is instead the direct consequence of unwise and often politicized manipulations of money and credit by monetary authorities. Students should be exposed to the emerging evidence supporting this theory.