Boom, Bust, and Bubbles: A Mengerian Account

18 Pages Posted: 10 Jun 2015 Last revised: 3 Oct 2017

Cameron Harwick

George Mason University - Department of Economics

Date Written: October 2, 2017


This paper offers a sketch of an account of asset bubbles based in the dynamics of the asset's moneyness, or liquidity. This approach has the virtue of subsuming a number of stylized facts which have been to this point the domain of competing approaches to business cycle theory. By using a broader and theoretically richer conception of money than the conventional simple-sum aggregates, the account 1) attributes depression to an excess demand for money, as in the traditional monetarist story, 2) explains how this can be true despite central banks' scrupulousness in avoiding falls in the money stock without falling back on an exogenous “velocity shock”, and 3) points to systematic capital misallocation over the course of the business cycle along different lines than those adduced by traditional theories of capital malinvestment.

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 (October 2, 2017). 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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