Depressions

Doesn't capitalism cause depressions?

No. The nationwide cycle of "booms" (major bull markets) followed by "busts" (major depressions), are the result of the only agency that has the power to act on a nationwide scale: the government.

What is a depression?

A depression is a major nationwide decline in production, and is the result of capital mal-investments into unprofitable industries on a major scale.

What causes these mal-investments?

These capital mal-investments can occur on such a large nationwide scale only by the government over-riding the checks and balances provided by the free market, i.e., making money "cheap" (forcing banks to lower the rate of interest) by "expanding the money supply". This "cheap" money results in irrational investment into industries that would appear unprofitable if the government did not intervene into the money supply.

What happens when these mal-investments are discovered?

Once these mal-investments are discovered, the result is a bust (depression) as the market begins the process of recovering from these mal-investments of capital.

How does one prevent depressions form occurring in the first place?

To prevent such a depression from occurring only one action is required: keep government out of the money supply and marketplace, by establishing a free-market for money (other variations on this theme are possible, this is only one such alternative), repeal of all irrational regulation, and the installment into law of objective legislation (where it does not already exist).

Suggested Reading:

Alan Greenspan's Gold and Economic Freedom in Ayn Rand's in Capitalism: The Unknown Ideal. Also Egalitarianism and Inflation in Ayn Rand's in Philosophy: Who Needs It.