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Boom-Bust in Microcosmby George ReismanMises Institute Nov. 08, 2010 |
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 The essential features of the boom-bust business cycle can be understood by viewing them in terms of the financial circumstances of a single individual. Thus, imagine that an ordinary person has been going about his life more or less living within his means. And now, one day, he receives a registered letter from a major bank. The letter informs him that he is the sole heir of a distant relative who possessed a substantial fortune, and that he should come into the bank's main office in his city to sign the necessary documents and receive all the necessary authorizations to henceforth dispose of this fortune as he sees fit. Naturally, he quickly goes in and takes possession of his newfound fortune. Whether the fortune in question is $100 million or $10 million, it is certain to have a major impact on this individual's life from this point forward. For it opens up new worlds to him by enabling him to now afford to buy things he could never dream of buying before. He can now afford a new home, perhaps a mansion. He can buy a whole new wardrobe, travel the world, quit any job that he currently has and does not love. If he is in business, he can expand his business in major ways. If he is not in business, he can start a significant-sized business. And he can now afford to invest and speculate in the stock and real-estate markets as well, inasmuch as his newfound wealth makes it possible for him no longer to fear losses of mere hundreds or thousands of dollars; indeed, it appears that he can now afford to lose even a million dollars and still be very rich. This is the boom period for our individual. His life is easy. He can do so much more than he had ever been able to do before. And his prospects appear limitless. For the rest of his life, he will look back upon this period with the greatest fondness and ardently wish to relive it. It is "the good times." Read More |
