Theories of the Trade Cycle

Theories of the Trade Cycle came out in 1934, partly under the influence of F.A. Hayek who had brought with him to London the insight he gained from his work in Vienna. His insight focused on the role of interest rates in generating the trade cycle — particularly rates manipulated by the central bank. Author Alec Macfie weighs Hayek’s point against prevailing business-cycle theory, and presents what was surely the clearest explanation in English at the time.

The book illustrates what a huge step in the right direction Hayek’s insights meant for prevailing wisdom — and what a gigantic setback Keynes’s own theories really were. Macfie shows that the reluctance to embrace Hayek’s views all came down to one central problem: the political impossibility of embracing bust-time liquidation and radical monetary reform as the only real solution to the business cycle.