Business Cycles: The Austrian View ECO 285 – Macroeconomics – Dr. Dennis Foster D. Ricardo L. von Mises J. M. Keynes M. Rothbard

Mises Wiki on the Austrian Business Cycle: Murray Rothbard on “Why the Business Cycle Happens”: Dan Mahoney on “ABCT: A Brief Explanation”: Patrick Barron, “Fear the Boom, Not the Bust”: Bob Murphy on “Three Flawed Fed Exit Options”: Tom Woods YouTube video on the Austrian Business Cycle Theory: Thomas Taylor, An Introduction to Austrian Economics – Chapter 8 only: Special Readings, et al.

Why are there Business Cycles? Flaw of Capitalism/Market System Observable since late 1700s.Observable since late 1700s. Coincides with Industrial Revolution/Capitalism.Coincides with Industrial Revolution/Capitalism. Something inherent in the market.Something inherent in the market. Will worsen until system collapses.Will worsen until system collapses. K. Marx

Why are there Business Cycles? Flaw of Capitalism/Market System Under-consumption theory.Under-consumption theory. “Excessive spending” causes inflation.“Excessive spending” causes inflation. “Insufficient spending” causes depression.“Insufficient spending” causes depression. –aka, too much saving!!! Need G to stabilize economy!Need G to stabilize economy! J. M. Keynes T. Malthus

No, Really, Why are there Business Cycles? Any theory must explain the following: Tendency towards repetitive cycles.Tendency towards repetitive cycles. “Mammoth” cluster of entrepreneurial errors.“Mammoth” cluster of entrepreneurial errors. Why depression is more intense in K-goods.Why depression is more intense in K-goods. Why retail is the “last and least” to fall.Why retail is the “last and least” to fall. M. Rothbard

No, Really, Why are there Business Cycles? Hume/Ricardo & Classical Economics: It’s not markets, but banking that is the key.It’s not markets, but banking that is the key. Banks expand credit and fuel inflation.Banks expand credit and fuel inflation. –Because it is a “fractional reserve” system.  imports,  exports,  gold outflows.  imports,  exports,  gold outflows. Banks get nervous,  credit, causing recession.Banks get nervous,  credit, causing recession. D. Ricardo D. Hume

No, Really, Why are there Business Cycles? von Mises & the Austrians Central bank precipitates cycle.Central bank precipitates cycle. Effect is to  interest rates.Effect is to  interest rates. Leads to unsustainable increase in Investment.Leads to unsustainable increase in Investment. Eventually, the recession comes to correct for this unsustainable path.Eventually, the recession comes to correct for this unsustainable path. Explains all the salient features of cycle. Explains all the salient features of cycle. L. von Mises F. Hayek

How should gov’t. address Business Cycles? von Mises & the Austrians Stop inflating money in the first place!Stop inflating money in the first place! Don’t bail out troubled firms!Don’t bail out troubled firms! Don’t inflate to get out of the depression!Don’t inflate to get out of the depression! Don’t encourage more consumption!Don’t encourage more consumption! L. von Mises F. Hayek What are we doing?

Business Cycles: The Austrian View ECO 285 – Macroeconomics – Dr. Dennis Foster D. Ricardo L. von Mises J. M. Keynes M. Rothbard