The Great Depression continues to be somewhat of an enigma for the
economics profession. This is especially the case with regard to the
causes of the initial economic downturn that started in the second half
of 1929. This paper presents several lines of evidence that it was
triggered by a break in a malinvestment boom predicted by the Austrian
Business Cycle Theory (ABCT) to tend to result from expansionary
monetary policies and deals with the potential objections and
alternative explanations. Of special significance are the sheer extent
of the 1927-29 industrial electrification investment boom and the
behavior of copper consumption and prices. I demonstrate that the rapid
fall in the total value of refined copper shipments early in the crisis
constitutes such a large part of the initial reduction in investment in
equipment that it provides strong evidence that industrial
electrification projects were at the heart of the early phase of the
crisis. There is also plausible evidence that potential malinvestments
prevented replacement of the declining spending on passanger cars and
residential structures in the fourth quarter of 1929.
Keywords: Malinvestment, Austrian Business Cycle Theory, US
Great Depression
JEL codes: B53, E32