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What is "must read" for understanding the ABCT?

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hyp3rvigi1ant Posted: Fri, Jul 30 2010 5:35 PM

What are the "must read" books/papers for understanding the Austrian Business Cycle Theory? Does anyone have any recommendations as to what order these books or papers might best be read?

Perhaps I/someone can create a wiki page with such a list as well, for easy future reference.

Thanks

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Roger Garisson's 'time and money' is, imo, the quintessential book to read on it, but it's not the easiest one around. 

I haven't read Rothbard's 'Depression: their cause and cure', but heard good stuff about. 

My introduction in the ABCT was the chapter in 'Economics for Real People' (by Gene Callahan) on the businesscycle; I would advise you to start there. 

The book 'the austrian theory of the trade cycle and other essys' is also very good, to get a general gist.

If you want to go into more advanced stuff, definitely read Time and Money. 

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There is The Austrian Theory of the Trade Cycle and Other Essays (http://mises.org/store/Austrian-Theory-of-the-Trade-Cycle-and-Other-Essays-The-P46.aspx), if you don't to necessarily dive right into Human Action.

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Gero replied on Fri, Jul 30 2010 8:01 PM

Viception: In a free market, where banking and money are not interfered with by government, the interest rate and the money supply are determined by the market. The boom-bust business cycle is due to interest rate and money supply manipulation. The interest rate is the cost to borrow money. In an honest banking system, loans come for deposited savings. Interest rates go up or down depending on the supply of loanable funds and the demand for loanable funds. If more people save, interest rates fall. If there is strong demand for loanable funds and/or little savings to loan, interest rates rise. If people are saving more, the loanable funds supply rises and interest rates fall. Lower interest rates provide businesses an opportunity to start long-term projects that would be unprofitable under high interest rates. Businesses respond to lower interest rates by raising their productive capacity: expanding an existing building and buying new equipment are examples. The only reason the businesses have the loans is because of loaned consumer savings. Those savings represent a lower desire to consume in the present. If people desired to save little and consume now, businesses could not affordably start long-term projects because of higher interest rates. The interest rate coordinates production. The interest rate can only optimally coordinate production if it is allowed to move up and down due to changes in demand and supply. If the interest rate is forced lower, by a central bank, than the free market would put it, discoordination begins. The central bank control interests rates and the money supply. The central bank expands the money supply and lowers interest rates. The cheap credit misleads businesses into long-term projects while the public has not saved enough to fund them. The public does not have the necessary purchasing power to buy the future stuff produced by the long-term projects. Austrian business cycle theory explains the bust, not the depression.

Viception: The business cycle is the periodic unsustainable boom, recession, and recovery. Austrian business cycle theory is how money supply expansion, inflation, lowers the interest rate for money. Borrowed money is invested in projects that consumers cannot in the long-term afford. The new money circulates in the economy pressuring prices upward, especially in the investment projects. A temporary boom occurs. Once consumers are unable to afford the new projects, the boom becomes bust (recession). The investment projects were malinvestments that must be liquidated for recovery. Malinvestment liquidation does not require massive unemployment. Employment is mainly due to rigid wage rates. If workers accept lower wages, recovery can occur without massive unemployment. Austrian business cycle theory explains inflation-induced recession, not depression. Recessions and depressions can occur for non-money reasons (natural disaster and war are examples). Sustainable growth requires investment financed by savings, not inflation.

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Esuric replied on Fri, Jul 30 2010 9:38 PM
  1. Monetary Theory and the Trade Cycle -Hayek.
  2. Prices and Production -Hayek

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Beefheart replied on Sat, Jul 31 2010 5:09 PM

Rothbard's section on the business cycle in America's Great Depression is a decent place to start.

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Thanks everyone, there were some good suggestions.  I've recently finished reading Man, Economy and State with Power and Market, and am now reading Human Action.  MESPM touched on it, but I'm definitely looking for something more in depth about ABCT after I finish Human Action.

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I created a wiki page listing all these suggestions.  Feel free to add to it and make changes.

http://mises.org/Community/wikis/economics/austrian-business-cycle-theory-reading-materials.aspx

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