Abstract
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