The Skyscraper Curse: And How Austrian Economists Predicted Each Main Financial Disaster of the Final Century
by Mark Thornton
Auburn, Ala.: Ludwig von Mises Institute, 2018

Michael Novak ( is a Ph.D. scholar in entrepreneurship at Oklahoma State College. He additionally holds an MBA from the College of Wisconsin-Whitewater.

In Mark Thornton’s The Skyscraper Curse, readers are uncovered to the distinctive phenomenon of the Skyscraper Index and supplied with a complete overview of Austrian enterprise cycle idea (ABCT). The Skyscraper Index, as readers study within the first few pages of the ebook, reveals a correlation between the event of a brand new tallest constructing on this planet and the enterprise cycle. After exposing readers to the Skyscraper Index, Thornton tactfully explains how the Skyscraper Index exemplifies ABCT, which postulates that insurance policies equivalent to artificially low rates of interest, company bailouts, and financial and monetary stimulus result in the financial booms and busts which have grow to be part of modern-day economies. With the world’s subsequent tallest skyscraper, the Jeddah Tower, at present beneath growth, a brand new skyscraper alert has been issued, and there’s not a extra well timed ebook to evaluate than The Skyscraper Curse.

Within the first two chapters of the ebook, Thornton outlines all financial crises courting again to 1889 and successfully reveals that every one of them occurred shortly after a record-breaking skyscraper was constructed. Andrew Lawrence created the Skyscraper Index in 1999 when he seen a correlation between the development of the world’s tallest buildings and the enterprise cycles occurring in the US (Lawrence 1999). Extra particularly, the index states that when there’s a groundbreaking ceremony for a brand new record-breaking skyscraper, the economic system is booming however that when the constructing reaches a record-breaking top, an financial disaster follows shortly. This would possibly appear to be an uncommon phenomenon, however the measure suits all of the financial crises of the previous century.

In chapter 3, Thornton, explains that the Skyscraper Index not a lot about record-breaking buildings being constructed however moderately exemplifies Austrian enterprise cycle idea. Thornton explains how the booms and busts within the economic system are induced “when the central financial institution reduces the market fee of curiosity under the pure fee of curiosity by growing the provision of cash and credit score” (p. 44). That’s, when instances are unhealthy, rates of interest are sometimes set artificially low, which improve the power of entrepreneurs to entry funds for investments. This coverage resides in Keynesian economics and is how politicians sometimes cope with financial crises. Nonetheless, as Thornton proceeds to clarify, that is the precise improper factor to do throughout financial crises.

Along with artificially low rates of interest, Thornton factors to Cantillon results as taking part in a serious half within the skyscraper phenomena. Richard Cantillon defined how the rise of cash within the market has completely different results relying on who receives it first (Cantillon 2010). As Thornton explains, if entrepreneurs acquired the brand new cash first, “the speed of curiosity would fall, but when the brand new cash got here into the palms of customers that fee of curiosity would rise” (p. 62). Thornton makes the Cantillon impact’s implications for the event of skyscrapers fully evident in explaining booms and busts within the economic system. When there are durations of deflation and/or rates of interest are low, land values improve and long-term tasks seem extra worthwhile. As well as, resulting from decrease rates of interest, corporations are in a position to develop sooner, improve their mergers and acquisitions, and look to develop abroad. As they pertain to growing skyscrapers, artificially low rates of interest result in a rise in land costs, in firm sizes, and demand for workplace house.

The truth that record-breaking skyscrapers are being constructed doesn’t clarify enterprise cycles however moderately showcases the underlying causes for skyscraper developments. When Thornton’s ebook was revealed in 2018, the Federal Reserve was retaining the goal rate of interest under 0.25 p.c, which is extraordinarily low primarily based on the historical past of the Federal Reserve. On the time of this writing (September 2020) the present goal rate of interest remains to be under 0.25 p.c. With charges this low, builders are inspired to spend extra and save much less. As Thornton explains, rational pondering is misplaced throughout financial booms as people are inspired to spend resulting from entry to low-cost cash.

In chapter 8, readers are launched to the Jeddah Tower, which is scheduled to be the world’s subsequent tallest constructing. Thornton mentions {that a} new skyscraper alert was issued on January 1, 2016 (p. 83). In chapter 9, he explains that groundbreaking date for a skyscraper needs to be thought-about a skyscraper alert and that the date when the record-breaking top is reached needs to be thought-about the “skyscraper sign” that an financial downturn is on the horizon. Thornton means that this modified mannequin would have higher forecasting energy than the unique skyscraper index.

In chapter 10, readers learn the way land costs improve extra in central enterprise districts and the way “falling rates of interest have an unambiguous impact on higher-wage people and land nearer to central enterprise districts” (p. 98). The outcomes of decrease rates of interest encourage individuals to maneuver nearer to central enterprise districts, thereby elevating land costs, and inflicting taller buildings to be constructed. Chapter 11 takes a novel perspective, illustrating how the Skyscraper Index will be utilized on the state stage. Thornton reveals how the development of the tallest buildings in Michigan and Arkansas coincided with enterprise cycles. Lastly, in chapter 12 Thornton summarizes part one and shifts the route of the ebook towards ABCT.


Part two of Thornton’s ebook is targeted on ABCT and the way it’s an efficient lens by means of which to view the economic system. In chapter 13, readers study Mises’s publication “Financial Stabilization and Cyclical Coverage”, written in 1928, which outlined a trigger for concern available in the market earlier than the Nice Melancholy occurred in 1929. By contrasting Mises’s work to the ideas of mainstream economist Irving Fisher, Thornton produces an early instance of an Austrian economist’s success in forecasting financial crises. Mises was one of many first students to clarify that when the central financial institution makes an attempt to maintain rates of interest low to keep up a growth the corresponding disaster turns into worse (Mises [1928] 2006). In chapter 14, readers study Keynesian economics and the way its insurance policies of financial growth concentrate on measuring financial prosperity by means of statistics equivalent to gross nationwide product and the unemployment fee. As well as, readers study that when the US was taken off the gold customary and adopted a fiat cash system, the wealth hole continued to develop as a result of a fiat system advantages bankers and folks with debt and hurts wage staff and savers (p. 128). Thornton makes use of the gold customary instance to stipulate how fiat cash and central banks have a tendency to assist the rich, damage the poor, and improve the wage hole.

Chapter 15 introduces readers to Murray Rothbard and his groundbreaking work on ABCT within the Nineteen Sixties and Nineteen Seventies and to F. A. Hayek’s work on enterprise cycle idea that led him to win the Nobel Prize in economics in 1974. Most significantly, Thornton explains how the Ludwig von Mises Institute was based in 1982 with the premier mission “to coach individuals about the advantages of a real gold customary as described within the Gold Fee’s minority report” (p. 135). In chapter 17 readers are supplied with a complete abstract of lead economists’ forecasts previous to the know-how bust of 2001, with a transparent sample coming to gentle: most of the appropriate forecasts have been made by students from the Austrian faculty and targeted on the Federal Reserve’s tendency to comply with a unfastened financial coverage of retaining charges under what they’d have been in any other case. Additionally, on the core of appropriate predictions on the enterprise cycle are the Cantillon results and extra particularly how growing the cash provide adjustments relative costs.

One of many areas the place value adjustments have been particularly prevalent in enterprise cycles is housing costs. Chapters 19, 20, and 21 expose readers to the Federal Reserve’s function within the housing bubble and the way the artificially low rates of interest set by the Federal Reserve drove renters to grow to be patrons and led to cost inflation. Thornton does a terrific job of explaining to readers how the Chicago faculty primarily denies the existence of market bubbles and the way the Keynesians consider that bubbles are resulting from psychological elements. Keynesians additionally see enterprise cycles as an “ebb and circulate of mass consciousness and feelings” (p. 189). In distinction to the Chicago faculty and Keynesianism, Austrians consider that each actual and psychological elements play a job in monetary bubbles however that the reason for bubbles finally comes again to the insurance policies of the Federal Reserve. In accordance with the Austrians, when new cash is launched within the cash provide and directed towards particular industries, bubbles develop. Thornton goes so far as to counsel that if the Fed wouldn’t intervene within the economic system by means of unfastened financial coverage, bubbles wouldn’t develop. As well as, the bubble isn’t the difficulty however moderately the Federal Reserve System, which permits booms to flourish and grow to be unsustainable, one thing that has been echoed by Murry N. Rothbard (1972). Thornton reveals how misallocations of sources to an trade develop beneath artificially low charges and the way the bubble pops when that irrational allocation turns into too nice to bear.

Within the closing chapters Thornton explains how depressions start with a interval of financial growth adopted by a disaster. Depressions are extended by authorities intervention by means of insurance policies which can be used to reverse financial disaster. Readers additionally study that many Austrians consider that in a despair the federal government ought to take an lively function in lowering the dimensions of the federal government and balancing the price range however a passive function in financial coverage to permit the economic system to recuperate as naturally as it may. Naturally is used flippantly, as the federal government intervention that individuals expertise within the economic system by means of the actions of the Federal Reserve makes it unimaginable to know what would occur within the absence of intervention. A laissez-faire strategy would make the corrective course of throughout a despair sooner and convey an economic system out of despair extra rapidly.


On the finish of the ebook readers are reminded of three essential causes of financial malaise within the US—a big debt accumulation, a private financial savings fee that has fallen dramatically, and a continued improve in regulatory burdens on the economic system. In accordance with Thornton, if the US is to beat its present financial flaws, the US must disband the Federal Open Market Committee, shut down the Federal Reserve, cancel the Fed’s holdings of presidency bonds, get rid of taxes on capital good points of gold, silver, and new cash (e.g., cryptocurrency), repeal authorized tender legal guidelines, and get rid of federal insurance coverage of demand deposits. Thornton acknowledges it is a lot to do without delay and would doubtless trigger a painful adjustment course of all through the economic system. Due to this fact, he proposes that the US begin with dismantling the Federal Open Market Committee and permitting rates of interest to be decided on the open market.

Thornton’s feedback on the function of the Federal Reserve within the economic system will not be supportive of the establishment by any means, however his arguments make it exhausting for mainstream economists to refute his stance. Within the first a part of the ebook, he makes it clear that though the Skyscraper Index does have a observe document of correlating the development of the world’s tallest buildings with enterprise cycles, the skyscrapers will not be the guts of the matter however moderately the fiscal insurance policies of the Federal Reserve that promote and encourage skyscraper growth. In an earlier article, Thornton talked about that it’s doable that the Skyscraper Index might grow to be out of date sooner or later (Thornton 2005). Nonetheless, even when the index does grow to be out of date, it doesn’t change Thornton’s arguments concerning the Federal Reserve’s function within the enterprise cycle.

Though the arguments outlined in The Skyscraper Curse are satisfactory for the aim of explaining the function of the Skyscraper Index and the power of ABCT to foretell financial crises, one space that would have used additional growth was the reason on how the true challenge with financial crises isn’t the bust however moderately the actions taken by the Federal Reserve in the course of the growth. Thornton outlines quite a few instances how fiscal insurance policies set by the Federal Reserve result in financial disaster, however it’s by no means deeply elaborated on. Rothbard (1963) made it clear to readers that in instances of financial growth, the Federal Reserve units insurance policies that extend financial booms (e.g., supporting credit score growth and decreasing rates of interest) and make the restoration from the corresponding busts longer. Had Thornton provided extra commentary on the growth, it might have made his arguments on how the US can overcome its present financial points extra compelling.

In abstract, The Skyscraper Curse exposes the Skyscraper Index, which has predicted each financial disaster since 1889 and complies with ABCT, however the ebook is extra about ABCT and exposing readers to the drawbacks of a Federal Reserve with a unfastened financial coverage. With the current occasions of COVID-19 and the Federal Reserve’s response of decrease rates of interest, company bailouts, and particular person stimulus funds, one could anticipate that an financial downturn is on the horizon. Mark Thornton’s ebook is a well timed evaluate of Austrian enterprise cycle idea and I encourage all to learn it in order that they are often ready for the following financial downturn.


Please enter your comment!
Please enter your name here