So, I've finally come to see that according to Austrain theory the major reason for the buisness cycle is the tamperings of the central bank and its manipulation of interest rates.
What I want to know is what is the rebuttal to this? The Austrian theory surrounding the interest rates is so simple when you get right down to it, and makes so much, well.... Sense, that I should think that there would be a good theoreticle reason why other economic schools don't have this same view of the interest rate, and what they're justification for it being an arbitrary tool for economic manipulation by the central bank.
What about Cowen, Risk and Business Cycles? I have seen it referenced a lot.
More critiques.
I got this from http://www.coordinationproblem.org/2009/12/the-monetary-theory-of-the-trade-cycle.html?cid=6a00d83451eb0069e20120a73d0003970b#comment-6a00d83451eb0069e20120a73d0003970b
which scineram linked to earlier.
"Well, if ABCT is summarized as the theory which says that money injected in credit markets create too many investments that later need to be liquidated, everything is easy and intuitively appealling, as it is a good fit with the day-to-day experience. This is the newspaper version of ABCT."However, it is not a conspiracy of keynesian economists if this account doesn't hold water at a more careful scrutiny."For instance, if investments rise, coeteris paribus, consumption must fall. This is a point which everybody does against ABCT (Krugman, Cowen...). The logic is that if production is constrained, than the choice between investment and consumption is mutually exclusive, and thus the BOOM should be characterized by a FALL in consumer well being. This doesn't make any sense: the newspaper version of ABCT doesn't account for the most obvious of the observations."
Isn't the answer to this one that the bust is indeed the fall in consumer well being?
Maybe the question is: why does the fall in consumer well being not happen at the very same time as the boom in malinvestments? I think the simple answer is becuase it takes a while for the lack of stuff to be felt.
Say you have a full refrigerator, stocked to bursting, shared by a few room mates. The deal is that everyone who takes something has to replace it within a week. Everybody does that but for one guy who takes out two at a time but gives back one. It takes a while for it to empty
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It's easy to refute an argument if you first misrepresent it. William Keizer
Smiling Dave:Say you have a full refrigerator, stocked to bursting, shared by a few room mates. The deal is that everyone who takes something has to replace it within a week. Everybody does that but for one guy who takes out two at a time but gives back one. It takes a while for it to empty
I'll keep this analogy in mind, it appears to be a simple, yet accurate, explanation of the effect of money / credit expansion. There seems to be prosperity during the "boom" (the time when the guy is taking two items but replacing only one). Obviously, this "structure of production" can't be sustained. The boom during money / credit expansion is caused by capital consumption, like the dairy farmer who cuts meat off his cows. It seems like "boom times" to him because he is eating steak every night. When the last cow is consumed, there is no more milk, and no more production of real goods. The farmer's living standard declines. The bust.
"The market is a process." - Ludwig von Mises, as related by Israel Kirzner. "Capital formation is a beautiful thing" - Chloe732.
Smiling Dave:"For instance, if investments rise, coeteris paribus, consumption must fall.
This betrays the common misconception that ABCT is about overinvestment. It's not. It's about malinvestment. It's about investment shifting into unfeasible lines of production, not about the total amount of that is invested at present increasing. When the structure of production is extended, it is not present investments that rise, it is the commitments for future investment that rise: commitments for which there aren't physically enough resources to fulfill. It is perfectly possible to increase consumption and increase investment commitments at the same time, just as it is perfectly possible for an individual to go on a shopping spree and start laying the simple groundwork for a factory he can't afford to finish building on the same day.