Money, Banking, and the Business Cycle. Volume 1: Integrating Theory and Practice. Volume 2: Remedies and Alternative Theories.

• Author: Cachanosky, Nicolas
• Position: Book review

* Money, Banking, and the Business Cycle. Volume 1: Integrating Theory and Practice. Volume 2: Remedies and Alternative Theories

By Brian P. Simpson

New York: Palgrave Macmillan, 2014.

Volume 1: Pp. xv, 278, $110 hardcover.

Volume 2: Pp. xi, 306, $110 hardcover.

Brian P. Simpson connects a wide range of macroeconomic topics that circle around business-cycle theories. His two volumes follow a natural sequence of analysis for someone who sees monetary policy as the reason for business cycles. After offering a theoretical discussion of money, banking, and inflation, Simpson describes the Austrian Business Cycle Theory (ABCT) (vol. 1, part 1), which is his main tool of analysis for the rest of the project. Next he applies ABCT to a range of historical cases, including the recession of the 1980s and the Great Depression (vol. 1, part 2). After demonstrating the case for ABCT in volume 1, Simpson offers in volume 2 refutations of alternative business-cycle theories (part 1) and boldly proposes a monetary reform that he believes will put an end to business cycles (part 2).

These two volumes fit naturally into the contemporary Austrian economics literature. The Rothbardian angle is patent throughout the project. Simpson asserts, for instance, that a "good definition of inflation" is not an increase in money supply beyond the increase in money demand, but an increase in money supply performed by the government (p. 1:24) and that to vastly improve the monetary system one would need to get rid of "fiat money and fractional reserve banking" (p. 2:219).

The title of chapter 4 in volume 1, "In Defense of Austrian Business Cycle Theory," truthfully captures the book's project. Directly or indirectly, each chapter has a role in defending ABCT. Simpson is not shy about the role he assigns to ABCT; in a passage whose message is repeated more than once, he states that "only one theory provides a comprehensive explanation of the cycle. The theory I discuss here is the only one that makes sense logically and explains all the factors of the cycle. The only valid theory of the business cycle is Austriait business cycle theory (ABCT), as put forward by authors such as Ludwig von Mises, George Reisman, Friedrich Hayek, and Murray Rothbard, among others" (p. 1:59, emphasis added).

The audacity of this statement encapsulates the most important shortcoming of this notable project. To support such a statement, not only does ABCT need to explain all business cycles, but...