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10/28/2020

Liberty Pulse

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Boom-Bust in Microcosm

1 min read

Boom-Bust in Microcosm

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…

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