A Reformulation of Austrian Business Cycle Theory in Light of the Financial Crisis

ABSTRACT: The financial crisis and the events leading up to it have sparked a remarkable renewal of interest in Austrian Business Cycle Theory (ABCT). A number of mainstream macroeconomists have criticized this resurgence of interest in ABCT on the grounds that the theory cannot explain the positive correlation of consumption and investment that occurs over the course of the business cycle. They allege that the theory predicts a slump in investment and capital goods’ industries and a corresponding boom in consumption during the recession. They therefore conclude that ABCT is manifestly in conflict with the stylized facts of the business cycle. In this paper I respond to these claims. I argue that the mainstream interpretation misrepresents essential features of the theory and conflicts with its presentation by its leading proponents. I then present an alternative formulation of the theory based on the works of Mises, Hayek and Rothbard. I argue that this version does satisfactorily account for the overconsumption boom and subsequent retail slump that were such conspicuous elements of the boom-bust cycle that played out over the past decade.

La suite sur Von Mises Institutes

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About ecoparis

Un groupe de chercheurs en économie autrichienne
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