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Understanding Business Cycles: Austrian Perspectives

Delve into the Austrian view on business cycles, exploring theories by Rothbard, Ricardo, von Mises, and Keynes. Learn why cycles occur, government's role, and more. Uncover historical flaws in capitalism and market systems.

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Understanding Business Cycles: Austrian Perspectives

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

  2. Special Readings, et al. Mises Wiki on the Austrian Business Cycle: http://wiki.mises.org/wiki/Austrian_Business_Cycle_Theory Murray Rothbard on “Why the Business Cycle Happens”: http://mises.org/daily/1558 Dan Mahoney on “ABCT: A Brief Explanation”: http://mises.org/daily/672 Patrick Barron, “Fear the Boom, Not the Bust”: http://mises.org/daily/5150/Fear-the-Boom-Not-the-Bust Bob Murphy on “Three Flawed Fed Exit Options”: http://mises.org/daily/5110/Three-Flawed-Fed-Exit-Options Tom Woods YouTube video on the Austrian Business Cycle Theory: http://www.youtube.com/watch?v=5K4Os5eXPw4 Thomas Taylor, An Introduction to Austrian Economics – Chapter 8 only: http://mises.org/books/introtoaustrian.pdf

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

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

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

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

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

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

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

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