Has anyone here read any Austrian literature which accepts the notion of or even explores non-monetary causes of the business cycle? I think I remember Mises or Hayek talking about cycles initiated by certain weather patterns or solar flares or something. But Mises is very clear: the Austrian business cycle does not seek to explain every crash in the past, it only explains the inevitable consequence of a certain policy.
The Anarch is to the Anarchist what the Monarch is to the Monarchist. -Ernst Jünger
The solar theory comes from Jevons. But are you talking about entire 'business cycles' or about 'crashes'?
I take it you are differentiating businesses cycles from crashes thusly: business cycles start a process which inevitably results in a downturn, whereas a crash can just be the precipitating event which ends a business cycle or causes a downturn generally?
I mean business cycle.
There are "natural" crashes like the Christmas crash.
Rothbard is explicit in his reasoning that what marks the business cylce is the lack of any real cause. If it has a real cause then there's really no need to have a separate "theory" of it in terms of why it would occur in the first place. That is already implied in the rest of economic theory. I might as well bring out a pet theory of mine which is that I'm starting to wonder whether or not ABCT, as it currently stands, just describes a case of the business cycle (talking about "unreal" cases here) and whether or not there aren't other ways that the business cycle could occur with Austrian Theory. For instance I think that the current crisis is much more a case of massive moral hazard than traditional ABCT.
Rothbard is explicit in his reasoning that what marks the business cylce is the lack of any real cause.
I might be misunderstanding, but I find this impossible to believe. I haven't read MES but this is irreconcileable with the Misesian position on the business cycle.
I mean that the business cycle is ultimately caused from the money side which then passes on to the goods side, not the other way around.
Ok yep I was :P. Can you link the exposition thereon?
Ugh, I can't remember exactly where it is. It's somewhere in MES and as I recall there's another mention of it in America's Great Depression. It's straightforward though. If there's a war where a great deal of materials are destroyed, or if there's a great crop blight, or some other obvious reason that AS would decrease, then of course business will recede, output will fall, and unemployment will result. The very reason why we need a theory of what causes a business cycle is that there's nothing like this to point to. It's like great destruction has been wrought out of nowhere. This is what has marked mainstream business cycle theory since Marx: an explanation of why crisis occurs in the absence of any "real" deficiencies or problems in the system itself (unless your talking about RBCT but I don't know much about them)
Something I find very interesting which Rothbard does say in MES which is very revealing about the nature of ABCT is that a sudden shortening of time preferences would cause a crash in business. This is extremely relevant because this would have the brunt of the same effect as ABCT
Neodoxy:Something I find very interesting which Rothbard does say in MES which is very revealing about the nature of ABCT is that a sudden shortening of time preferences would cause a crash in business. This is extremely relevant because this would have the brunt of the same effect as ABCT Across the board? Wouldn't a sudden shortening of time preferences just cause reallocation of resources from the earlier stages of production to the later ones, preventing a "crash" at least in the later stages? | Post Points: 20
For instance I think that the current crisis is much more a case of massive moral hazard than traditional ABCT.
It is due to a mixture of causes, including credit expansion. Credit expansion provided the fuel for it, but there were a lot of regulatory developments outside of monetary policy that aggravated the crisis and caused the banks to act with wanton recklessness.
Freedom of markets is positively correlated with the degree of evolution in any society...
Neodoxy,
If you're interested in brief treatments why the recent financial crisis can't really be attributed to moral hazard, I'd like to point you towards two relatively short posts of mine on the subject: "2007–09 Under an Austrian Lens" and "Freddie and the Crisis." The latter is probably the most relevant, as it deals with the supposed role of GSEs in instigating the crisis.