The Natural Cycle: WHY Economic Fluctuations are Inevitable. A Schumpeterian Extension of the Austrian Business Cycle Theory
AbstractThe conventional version of Austrian business cycle theory focuses on a temporary imbalance between natural and monetary rates of interest. When, because of the role of monetary authorities in defining the monetary rate, the two values are in a situation of imbalance, the resulting expansion stage is followed by a recession. On the other hand, if instead the expansive phase arises without any interference by monetary authorities but through re-adaptation of the productive structure to a modified structure of temporal preferences, a period of sustainable growth begins that will not be followed by a crisis. The purpose of this essay is to demonstrate, on the other hand, that because of profitexpectations and the combined action of Schumpeterian elements (imitations-speculations and the ‘creation of money’ by banks), even a so-called ‘sustainable’ boom will be affected by a liquidation and settling crisis. What distinguishes the latter situation from the conventional case of imbalance between monetary and natural rates is not the onset or otherwise of a crisis but, rather, its intensity and duration. We will define as natural an economic cycle characterised by a stage of expansion considered to be ‘sustainable’ in the Austrian theory but followed by an inevitable readjustment crisis.
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Bibliographic InfoArticle provided by Lifescience Global in its journal Journal of Reviews on Global Economics.
Volume (Year): 3 (2014)
Issue (Month): ()
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Austrian Economics; Hayek; Schumpeter; Business Cycles; Expectations; Innovation;
Find related papers by JEL classification:
- B13 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Neoclassical through 1925 (Austrian, Marshallian, Walrasian, Stockholm School)
- B25 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Historical; Institutional; Evolutionary; Austrian
- B53 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Austrian
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
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