Booms and Busts

Arthur Hughes seeks to apply the Austrian theory of the business cycle to the recession of 1990.

While damning the free market with the faintest of praise, Krugman’s book provides us with an excellent example of why it is so important to get the analysis right before prescribing policy solutions for an economic problem.

Markets are not efficient as that term is currently used in academic finance. Rather, markets are reflexive in that market behavior and the fundamentals reflect each other via a two-way, interactive feedback loop.

We contribute to the debate over the contemporary relevance of the Austrian Business Cycle theory (ABC) by making three theoretical developments.

Recognizing different types of savings allows for a more fruitful analysis of the business cycle. Sustainable investment activities must be financed by an equivalent amount of savings, both in length of availability and quantity. 

It is suggested in Daniel Kuehn’s article in this issue (2011) that MacKenzie (2010) is wrong about Hoover’s effectiveness in pushing a high wage policy that caused high unemployment.

The Great Transformation is a Human Action-sized treatise about how the Fed over the past several decades has generated economic instability in far more ways than even the Austrian business cycle 

Free banking is a process where the market makes the ultimate judgment on where to draw the line between money as a present good and money as a future good.

When the economics profession turns its attention to financial panics and crashes, the first episode mentioned is tulipmania. In fact, tulipmania has become a metaphor in the economics field. 

Ludwig von Mises established the foundations of modem Austrian economics while Irving Fisher established the foundations of modem mainstream macroeconomics and central bank policy.