The Austrian business cycle theory is an explanation of the phenomenon of business cycles held by the Austrian School of economics. The theory views business cycles (or, as some Austrians prefer, "credit cycles") as the inevitable consequence of excessive growth in bank credit, exacerbated by inherently damaging and ineffective central bank policies, which cause interest rates to remain too low for too long, resulting in excessive credit creation, speculative economic bubbles and lowered savings.[1]
The theory proposes that a sustained period of low interest rates and excessive credit creation results in a volatile and unstable imbalance between saving and investment.[2] According to the theory, the business cycle unfolds in the following way. Low interest rates tend to stimulate borrowing from the banking system. This expansion of credit causes an expansion of the supply of money, through the money creation process in a fractional reserve banking system. This in turn leads to an unsustainable credit-sourced boom during which the artificially stimulated borrowing seeks out diminishing investment opportunities. This credit-sourced boom results in widespread malinvestments, causing capital resources to be misallocated into areas that would not attract investment if the money supply remained stable. A correction or "credit crunch" – commonly called a "recession" or "bust" – occurs when exponential credit creation cannot be sustained. Then the money supply suddenly and sharply contracts when markets finally "clear", causing resources to be reallocated back towards more efficient uses. The main proponents of the Austrian business cycle theory historically were Ludwig von Mises and Friedrich Hayek. Hayek won a Nobel Prize in economics in 1974 (shared with Gunnar Myrdal) in part for his work on this theory.[3][4]
Austrian business cycle theory contradicts mainstream economic understanding of business cycles, and is generally rejected by mainstream economists. Economists such as Milton Friedman,[5][6] Gordon Tullock,[7] Bryan Caplan,[8] and Paul Krugman[9] have said that they regard the theory as incorrect.
- A brief account of the history of logic, from the The Oxford Companion to Philosophy (edited by Ted Honderich), OUP 1997, 497-500.
- A biography of Peter Abelard, published in the Dictionary of Literary Biography Vol. 115, edited by Jeremiah Hackett, Detroit: Gale Publishing, 3-15.
- Philosophy in the Latin Christian West, 750-1050, in A Companion to Philosophy in the Middle Ages, edited by Jorge Gracia and Tim Noone, Blackwell 2003, 32-35.
- Ockham wielding his razor!
- Review of The Beatles Anthology, Chronicle Books 2000 (367pp).
- A brief discussion note about Susan James, Passion and Action: The Emotions in Seventeenth-Century Philosophy.
- Review of St. Thomas Aquinas by Ralph McInerny, University of Notre Dame Press 1982 (172pp). From International Philosophical Quarterly23 (1983), 227-229.
- Review of William Heytesbury on Maxima and Minima by John Longeway, D.Reidel 1984 (x+201pp). From The Philosophical Review 96 (1987), 146-149.
- Review of That Most Subtle Question by D. P. Henry, Manchester University Press 1984 (xviii+337pp). From The Philosophical Review 96 (1987), 149-152.
- Review of Introduction to the Problem of Individuation in the Early Middle Ages by Jorge Gracia, Catholic University of America Press 1984 (303pp). From The Philosophical Review 97 (1988), 564-567.
- Review of Introduction to Medieval Logic by Alexander Broadie, OUP 1987 (vi+150pp). From The Philosophical Review 99 (1990), 299-302.
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