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"CONGRESS IS CURRENTLY CONSIDERING AN EMERGENCY ...stimulus measure, tentatively called the Bubble Act," ran the mock-news story in the satirical weekly The Onion, "which would order the Federal Reserve to begin encouraging massive private investment in some fantastical financial scheme in order to get the nation's false economy back on track."

While the Fed generally needs no such encouraging, the story had the ring of non-literal truth. Economists of the Austrian school have been telling us for many years that the source of boom-and-bust is the artificial expansion of money and credit brought on by the Federal Reserve.

And just to anticipate the usual objection: Boom-and-bust cycles certainly were a common occurrence before the advent of the Fed. But before the advent of the Fed, the artificial expansion of money and credit was also a common occurrence. The central bank was merely a way to institutionalize the process, while not incidentally giving economists another seat at the tables of power.

That last point is crucial. Why is mainstream economics so unclear on the causes of business cycles? Perhaps because mainstream economists have been seduced by explanations that would elevate their power -- usually variations on the bogus theory originally advanced by John Maynard Keynes. That business cycles can actually be caused by an institution whose abolition would diminish the power of economists is not an insight that economists are eager to grasp.

But reality does keep asserting itself. For example, Columbia University economist and non-Austrian Jeffrey Sachs has recently written: "The U.S. crisis was actually made by the Fed.... Monetary expansion generally makes it easier to borrow, and lowers the cost of doing so, throughout the economy.... What was distinctive this time was the new borrowing was concentrated in housing.... The Fed, under Greenspan's leadership, stood by as the credit boom gathered steam, barreling toward a subsequent crash."

To be fair, economist Sachs seems to be implying that the solution is to be found in better management of the Fed, rather than outright abolition. On the other hand, since Sachs is indicting the reputed "maestro" of Fed chairmen, Alan Greenspan himself, the burden is surely on Sachs to prove the point. Should we really stake the future of the economy on the hope that wise men even wiser than Greenspan will someday be our central bankers?

The abolition of the central bank is just a major first step, since, as mentioned, the artificial expansion of money and credit can be carried on by other means. But it's a necessary first step. There are better and worse ways to manage the Federal Reserve, but most are a matter of luck and hindsight. As economist Marc Faber has written, "When...the public...finally realizes that central bankers are no wiser than the central planners of former communist regimes, the tide will turn and monetary reform will come to the fore.... market forces [will] drive economic activity, and not some kind of central planner...."

Meanwhile, another key objection to Austrian business cycle theory is that the market should eventually be able to anticipate a credit expansion, and by doing so avoid its harmful effects. In other words, why can't "rational expectations" defeat the Fed-induced business cycle? On that question, try Gene Callahan's Economics for Real People: An Introduction to the Austrian School, Chapter 13. The Onion editors should also read it, if they haven't already.