Monetary Expansion and Recession Are Inseparable

Under the impact of a monetary disturbance, prices will transmit misinformation. The revelation of this misinformation and its correction constitute a recession. The abnormal rise in losses and unemployment is the counterpart to the misallocations created by the misinformation. In short, monetary expansion and recession are inseparable!

If the expansion is halted, the recession is precipitated rapidly. It may be extensive and deep. But once the readjustment is completed and a sustainable pattern of output and employment established, there need be no further allocative difficulties and certainly no currency depreciation. . . .

If the expansion is repeatedly accelerated to overcome the recession, the outcome is obvious. Such a a situation may well come to face the developed economies of the Western world, unintentionally, no doubt as the consequence of the cumulative outcome of successive decisions to expand the money supply in the face of the threatening depression. The economists quoted here assure us that our financial system will never permit another Great Depression. Can they also assure us that it will never permit a hyperinflation?

--Gerald P. O'Driscoll Jr. and Sudha R. Shenoy, "Inflation, Recession, and Stagflation," in The Foundations of Modern Austrian Economics, ed. Edwin G. Dolan (Kansas City: Sheed and Ward, 1976), 205-206.