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Financial Foundations of Austrian Business Cycle Theory

In: Studies in Austrian Macroeconomics


  • Nicolás Cachanosky
  • Peter Lewin


Abstract In this paper, we study financial foundations of Austrian business cycle theory (ABCT). By doing this, we (1) clarify ambiguous and controversial concepts like roundaboutness and average period of production, (2) we show that the ABCT has strong financial foundations (consistent with its microeconomic foundations), and (3) we offer examples of how to use the flexibility of this approach to apply ABCT to different contexts and scenarios.

Suggested Citation

  • Nicolás Cachanosky & Peter Lewin, 2016. "Financial Foundations of Austrian Business Cycle Theory," Advances in Austrian Economics,in: Studies in Austrian Macroeconomics, volume 20, pages 15-44 Emerald Publishing Ltd.
  • Handle: RePEc:eme:aaeczz:s1529-213420160000020002

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    References listed on IDEAS

    1. Avi J. Cohen, 2003. "Retrospectives: Whatever Happened to the Cambridge Capital Theory Controversies?," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 199-214, Winter.
    2. Cachanosky, Nicolas, 2014. "The effects of U.S. monetary policy on Colombia and Panama (2002–2007)," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(3), pages 428-436.
    3. Nicolas Cachanosky, 2015. "Expectation in Austrian business cycle theory: Market share matters," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 28(2), pages 151-165, June.
    4. Garrison, Roger W, 1994. "The Federal Reserve: Then and Now," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 8(1), pages 3-19.
    5. Robert Lester & Jonathan Wolff, 2013. "The empirical relevance of the Mises-Hayek theory of the trade cycle," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 26(4), pages 433-461, December.
    6. Weil, Roman L, 1973. "Macaulay's Duration: An Appreciation," The Journal of Business, University of Chicago Press, vol. 46(4), pages 589-592, October.
    7. Douglas W. Diamond & Raghuram G. Rajan, 2009. "The Credit Crisis: Conjectures about Causes and Remedies," American Economic Review, American Economic Association, vol. 99(2), pages 606-610, May.
    8. Nicolas Cachanosky, 2014. "The Mises-Hayek business cycle theory, fiat currencies and open economies," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 27(3), pages 281-299, September.
    9. Jesus Felipe & Franklin M. Fisher, 2003. "Aggregation in Production Functions: What Applied Economists should Know," Metroeconomica, Wiley Blackwell, vol. 54(2-3), pages 208-262, May.
    10. Hume, Michael & Sentance, Andrew, 2009. "The global credit boom: Challenges for macroeconomics and policy," Journal of International Money and Finance, Elsevier, vol. 28(8), pages 1426-1461, December.
    11. repec:kap:revaec:v:30:y:2017:i:2:d:10.1007_s11138-016-0340-5 is not listed on IDEAS
    12. Axel Leijonhufvud, 2009. "Out of the corridor: Keynes and the crisis," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 741-757, July.
    13. N. Cachanosky & P. Lewin, 2014. "Roundaboutness is Not a Mysterious Concept: A Financial Application to Capital Theory," Review of Political Economy, Taylor & Francis Journals, vol. 26(4), pages 648-665, October.
    14. Robert Dorfman, 1959. "Waiting and the Period of Production," The Quarterly Journal of Economics, Oxford University Press, vol. 73(3), pages 351-372.
    15. Fritz Machlup, 1935. "Professor Knight and the "Period of Production"," Journal of Political Economy, University of Chicago Press, vol. 43, pages 577-577.
    16. Osborne, Michael J., 2005. "On the computation of a formula for the duration of a bond that yields precise results," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(1), pages 161-183, February.
    17. William Luther & Mark Cohen, 2014. "An Empirical Analysis of the Austrian Business Cycle Theory," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 42(2), pages 153-169, June.
    18. Young, Andrew T., 2005. "Reallocating labor to initiate changes in capital structures: Hayek revisited," Economics Letters, Elsevier, vol. 89(3), pages 275-282, December.
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    Cited by:

    1. Fratini, Saverio M., 2018. "A note on re-switching and the neo-Austrian concept of the average period of production," MPRA Paper 87306, University Library of Munich, Germany.
    2. repec:kap:revaec:v:31:y:2018:i:1:d:10.1007_s11138-016-0374-8 is not listed on IDEAS

    More about this item


    Macaulay duration; modified duration; Austrian business cycles; average period of production; roundaboutness; economic value added; EVA®; B53; E23; E30;

    JEL classification:

    • B53 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Austrian
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)


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