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Boom, Bust, and Bubbles: A Mengerian Account

19 Pages Posted: 10 Jun 2015 Last revised: 24 Dec 2015

Cameron Harwick

George Mason University - Department of Economics

Date Written: December 15, 2015


The eclipse of capital-theoretic explanations of depressions by more straightforward monetary explanations in the decades following the Great Depression has obscured important questions that were asked by the older theory, even if it did not answer them satisfactorily. This paper offers an account of asset bubbles based in the dynamics of the asset's moneyness, or liquidity. In doing so, it subsumes both the attribution of depression to an excess demand for money (and explains how this can be true despite central banks' scrupulousness in avoiding falls in the money stock), and the observation of systematic capital misallocation over the course of the business cycle.

Keywords: Business cycles, Asset bubbles, Money, Capital, Depression, Recession, Credit

JEL Classification: E32, G1, E51

Suggested Citation

Harwick, Cameron, Boom, Bust, and Bubbles: A Mengerian Account (December 15, 2015). GMU Working Paper in Economics No. 15-63. Available at SSRN: or

Cameron Harwick (Contact Author)

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

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