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The rise and fall of the subsistence fund as a resource constraint in Austrian business cycle theory

Author

Listed:
  • Eduard Braun

    (Clausthal University of Technology)

  • David Howden

    (Saint Louis University – Madrid Campus)

Abstract

The “subsistence fund” was once an integral part of Austrian business cycle theory to indicate the resource constraint on the ability to complete investments. Early agrarian and industrial economies were constrained by resource availability in a manner consistent with that alluded to by the subsistence fund. This link became more tenuous as the growth of the financial economy in the twentieth century removed the apparent importance of pre-saved goods to complete investments. At this point the subsistence fund came to be used only as a metaphor and was jettisoned from Austrian business cycle theory. The present paper points to the merits of the subsistence fund in explaining the turning point of the business cycle as compared to alternative explanations. It also works out the deficiencies in historical expositions of the Austrian theory based on the subsistence fund, and traces the evolution of the resource constraint at the core of Austrian economists´ treatment of the business cycle.

Suggested Citation

  • Eduard Braun & David Howden, 2017. "The rise and fall of the subsistence fund as a resource constraint in Austrian business cycle theory," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 30(2), pages 235-249, June.
    • Handle: RePEc:kap:revaec:v:30:y:2017:i:2:d:10.1007_s11138-016-0347-y
    DOI: 10.1007/s11138-016-0347-y
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    References listed on IDEAS

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    1. Boivin, Jean & Kiley, Michael T. & Mishkin, Frederic S., 2010. "How Has the Monetary Transmission Mechanism Evolved Over Time?," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 8, pages 369-422, Elsevier.
    2. Roger W. Garrison, 2004. "Overconsumption and Forced Saving in the Mises-Hayek Theory of the Business Cycle," History of Political Economy, Duke University Press, vol. 36(2), pages 323-349, Summer.
    3. Bagus, Philipp & Howden, David, 2010. "The Term Structure of Savings, the Yield Curve, and Maturity Mismatching," MPRA Paper 79592, University Library of Munich, Germany.
    4. Doris G. Phillips, 1967. "The Wages Fund in Historical Context," Journal of Economic Issues, Taylor & Francis Journals, vol. 1(4), pages 321-334, December.
    5. John C. H. Fei, 1965. "Per Capita Consumption and Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 79(1), pages 52-72.
    6. Peter Phillips, 2010. "Financial crisis of metaphor," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 23(3), pages 223-242, September.
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    More about this item

    Keywords

    Subsistence fund; Early business cycle theories; Austrian business cycle theory; Wages fund;
    All these keywords.

    JEL classification:

    • B13 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Neoclassical through 1925 (Austrian, Marshallian, Walrasian, Wicksellian)
    • B25 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Historical; Institutional; Evolutionary; Austrian; Stockholm School
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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