The Austrian Theory of the Trade Cycle and Other Essays (LvMI)

by Richard M. Ebeling

Can the intertemporal misallocation of capital that occurs during the boom account for the length and depth of the depression? Haberler provides one of the best answers to this question—one that is most favorable to the Austrian theory—in his 1932 essay. The “maladjustment of the vertical structure of production,” to use Haberler’s own term, does not, by itself, account for the length and depth of the depression. Rather, this policy-induced change in the intertemporal structure of capital is the basis for the claim that a crisis and downturn are inevitable. The reallocation of resources that follows the downturn, which largely mirrors—both qualitatively and quantitatively—the earlier misallocation, involves an abnormally high level of (structural) unemployment but need not involve a deep and lengthy depression.