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The Austrian Theory Of The Trade Cycle

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required reading for the world

to understand what caused the current crisis and to stop the governments and bankers from making it worse

http://mises.org/pdf/austtrad.pdf

Grounded in the economic theory set out in Carl

Menger's Principles of Economics and built on the vision of

a capital-using production process developed in Eugen von

Böhm-Bawerk's Capital and Interest, the Austrian theory

of the business cycle remains sufficiently distinct to justify

its national identification. But even in its earliest rendition

in Ludwig von Mises's Theory of Money and Credit and in

subsequent exposition and extension in F. A. Hayek's

Prices and Production, the theory incorporated important

elements from Swedish and British economics. Knut

Wicksell's Interest and Prices, which showed how prices

respond to a discrepancy between the bank rate and the real

rate of interest, provided the basis for the Austrian account

of the misallocation of capital during the boom. The market

process that eventually reveals the intertemporal

misallocation and turns boom into bust resembles an

analogous process described by the British Currency

School, in which international misallocations induced by

credit expansion are subsequently eliminated by changes in

the terms of trade and hence in specie flow.

The Austrian theory of the business cycle emerges

straightforwardly from a simple comparison of savings induced

growth, which is sustainable, with a credit-induced

boom, which is not. An increase in saving by individuals

and a credit expansion orchestrated by the central bank set

into motion market processes whose initial allocational

effects on the economy's capital structure are similar. But

the ultimate consequences of the two processes stand in

stark contrast: Saving gets us genuine growth; credit

expansion gets us boom and bust.

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It's just a shame Ponzi Brown abolished Boom/bust otherwise this might have been relevant.

Funny, I posted on another forum earlier today, wondering if Gordon's "No return to boom and bust" actually a careful and deliberate rebuttal of Austrian theory?

That is: "This period of growth is not a boom. There is no malinvestment." and "This downturn is not a bust. There is no need to retrench and allow bad ventures to fail. We will simply spend through it."

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I think we first need to know what they mean by 'savings'.

Do they mean bank credit accumulated under someones name? Do they mean piles of central bank notes under the bed? Do they mean gold buried in the garden? Or do they mean food stored in the cellar?

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Funny, I posted on another forum earlier today, wondering if Gordon's "No return to boom and bust" actually a careful and deliberate rebuttal of Austrian theory?

That is: "This period of growth is not a boom. There is no malinvestment." and "This downturn is not a bust. There is no need to retrench and allow bad ventures to fail. We will simply spend through it."

i was trying to find browns dig against the austrians

this is all i could find

http://article.nationalreview.com/print/?q...DQ3NmMxNDFmOWU=

Brown is habitually described as dour, although I don’t find him so, really: Rather like Merkel, he is simply unflamboyant. And that can be rather refreshing in politics. For a half-hour or so, he talks as much like an econ prof as a politician or prime minister—and he is good at it (talking like an econ prof). He is fairly sanguine about the world economic situation, and he has his reasons. He is keen for people to know that we are in “a global banking crisisâ€â€”not a crisis of inflation and other such things. And, “if you don’t understand what the problem is, you’re not going to get the solution.â€

He talks about what we have been learning—and cites Titian, who, at a great age, when he reached his last painting, said, “I’m finally beginning to learn how to paint.†“That is where we are,†says Brown: “We’ve been learning all the time about how to deal with problems for which we have no historical analogies to fall back on. When the problems of the 1930s hit, the world did not have the global financial markets we have today.â€

Brown says that “there’s an implicit protectionism in what’s happening at the momentâ€â€”implicit protectionism, to go with the more explicit kind. For example, countries that have foreign banks in them have seen a flight of capital—that capital is going home. Brown warns of what he calls “financial isolationism,†and mercantilism, and other parts of “the new protectionism.â€

Amanpour brings up the Bank of Scotland, of which the British government now owns 70 percent, apparently. Says Brown, “This is not about whether to nationalize banks or not—this is about the resumption of lending, and how that can happen.†And he says something we often hear these days: that the word “credit†relates to “belief†or “trust.†What we are having—as, again, everyone says—is “a crisis of confidence†and of “trust in the banking system.â€

Brown says, “We want to reward hard work and enterprise—people who show great innovation or talent. That is what must be rewarded.†I’m thinking, “This is a British Labour leader? Really? Mr. Foot didn’t sound like that, when I was coming of age—neither did Mr. Kinnock, not to mention Tony Benn.†(And, of course, Joe Biden sounded like Neil Kinnock—though less musical and articulate.)

But Brown quickly cautions against laissez-faire. (Not much of that going around.) And he cites with great, smiling approval the old socialist John Kenneth Galbraith, who—according to Brown—spoke at an event commemorating the 40th anniversary of post-war Austria. Sitting in the first row were Hayek and other such greats, and he thanked them for what they had done. (This is according to Brown.) Because, if they hadn’t left Austria in 1945, the country would not have been able to enjoy the economic growth that came from social-democratic policies.

Personally speaking, I’ll take a strand of Hayek’s hair over JKG’s entire, extremely long body.

Says Brown, “These are progressive times,†and “you mustn’t leave everything to markets.†At the same time, “we can’t be anti-market, anti-globalization, anti-business.†We must watch two opposite tendencies: the tendency to “retreat into protectionism†and the tendency to “retreat into doing nothing.†(I myself haven’t heard many politicians argue for staying the governmental hand.)

It’s a bit hard to know where exactly Brown stands. But maybe he stands squarely in the Third Way.

What’s clear is this, and Brown is right as rain: “It is ridiculous to think that institutions built for solving the problems of the 1940s can work to solve the problems of 2009.†We need a new order, a new Bretton Woods, Brown says. And “we should be financing a low-carbon economy.†Brown cites Rahm Emanuel, who apparently has said, “A crisis is a terrible thing to wasteâ€â€”let’s take advantage of it. Brown agrees and approves.

During a brief audience Q&A, a woman stands up and essentially gives her opinions—tart ones—instead of asking a proper journalistic question. She has identified herself as with the BBC.

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I find it interesting that a lot of people on these boards have a lot of time for the Austrians, but they are still reviled elsewhere. Does anyone have a concise explanation* of why this might be?

In fact, do we have any adherents to more mainstream, even neo-Keynesian economics here?

* "because they are idiots" is not going to help me much.

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I find it interesting that a lot of people on these boards have a lot of time for the Austrians, but they are still reviled elsewhere. Does anyone have a concise explanation* of why this might be?

In fact, do we have any adherents to more mainstream, even neo-Keynesian economics here?

* "because they are idiots" is not going to help me much.

i think it is because people have been indoctrinated into thinking that big government can save us

the system does not encourage free thinking

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I find it interesting that a lot of people on these boards have a lot of time for the Austrians, but they are still reviled elsewhere. Does anyone have a concise explanation* of why this might be?

In fact, do we have any adherents to more mainstream, even neo-Keynesian economics here?

* "because they are idiots" is not going to help me much.

statists have a vested interest in brain-washing the population with pro-interventionist bullsh1t.

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you are being sarcastic?

I think he means that nearly all money is created as debt, which is it. Therefore some entity has to fall into debt to provide the money needed to save. Under fraction reserve banking that is. It doesn't need to be that way, it's just good for banksters.

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I find it interesting that a lot of people on these boards have a lot of time for the Austrians, but they are still reviled elsewhere. Does anyone have a concise explanation* of why this might be?

In fact, do we have any adherents to more mainstream, even neo-Keynesian economics here?

* "because they are idiots" is not going to help me much.

Apart from the above reasons, the last bout of statist theft and destruction before this one claimed a form of austrian economics (and Randian philosophy) as it's basis.

It's a little like "free markets" - a great idea but the term has now been hijacked and is usually meant to mean every government intervention from Thatcher having the police beat the miners to Pinochet's trained rape dogs being balls deep in your gran.

Watch what they do, don't listen to what they say.

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i think it is because people have been indoctrinated into thinking that big government can save us

the system does not encourage free thinking

statists have a vested interest in brain-washing the population with pro-interventionist bullsh1t.

That helps. (Particularly what I've bolded).

Apart from the above reasons, the last bout of statist theft and destruction before this one claimed a form of austrian economics (and Randian philosophy) as it's basis.

It's a little like "free markets" - a great idea but the term has now been hijacked and is usually meant to mean every government intervention from Thatcher having the police beat the miners to Pinochet's trained rape dogs being balls deep in your gran.

Watch what they do, don't listen to what they say.

What "last bout of statist theft and destruction" do you refer to?

I don't want to jump to conclusions.

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That helps. (Particularly what I've bolded).

What "last bout of statist theft and destruction" do you refer to?

I don't want to jump to conclusions.

Thatcherism/reagnism/nulabour - where you vote for smaller government and less intrusion/more fairness and 4 years later your kids have 12 zillion in debt owing and the bottom inspector wants to talk to you about your stools not being up to european standards.

Thatch talked a hell of a lot about free choice and non interventionist chicgo school monetarism, while borrowing til her eyes bled, putting it on the pooors credit card and stoving the heads in of anyone who argued with her.

Reagan talked a lot about free markets but actually sold the US to japan and shina (payoff - $2.5million us)

And so forth.

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Thatcherism/reagnism/nulabour - where you vote for smaller government and less intrusion/more fairness and 4 years later your kids have 12 zillion in debt owing and the bottom inspector wants to talk to you about your stools not being up to european standards.

Thatch talked a hell of a lot about free choice and non interventionist chicgo school monetarism, while borrowing til her eyes bled, putting it on the pooors credit card and stoving the heads in of anyone who argued with her.

Reagan talked a lot about free markets but actually sold the US to japan and shina (payoff - $2.5million us)

And so forth.

Good job I did not jump.

Personally, I think the above is the same bout as we are currently in.

(Just how do you you get to Injin relevant posts so fast? Do you have a team of researchers?)

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Good job I did not jump.

Personally, I think the above is the same bout as we are currently in.

(Just how do you you get to Injin relevant posts so fast? Do you have a team of researchers?)

No idea why I can, but I read everything at light speed and can type at a billion miles an hour.

And yes, the bulk of the population are about to be suckered again.

it won't matter, even suckerdom has it's real world limits.

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Savings without debt?

Yes, unused, unliable real world stuff.

Come to Hong Kong, where aggregate savings exceed aggregate debt.

Not likely. I don;t have much time for that part of the world since the first wife. :)

How is that possible?

They invest their savings in Foreign assets. Like houses, where you lot live.

Then they have invested in the state and will lose all their investment. Suckers play.

If you are long, Better hope they keep buying...

Doesn't matter.

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Proponents of the Free Market & Friedmanite's were proud to announce the Chilean economic 'miracle'

as the PROOF that free markets worked whilst the going was good.

Only once it soured & turned to catastrophe did Free Market Fundamentalists begin pointing to the parts

of the experiment that weren't entirely lassez faire.

The fact remains, that the closer the experiments get to free markets, the more crises occur & the

greater the crises are.

Free Markets are what Rich countries want Poor countries to adopt, so that we can go in & buy up

all their businesses when they privatize & make a killing riding the boom busts of the cycle.

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Proponents of the Free Market & Friedmanite's were proud to announce the Chilean economic 'miracle'

as the PROOF that free markets worked whilst the going was good.

Only once it soured & turned to catastrophe did Free Market Fundamentalists begin pointing to the parts

of the experiment that weren't entirely lassez faire.

The fact remains, that the closer the experiments get to free markets, the more crises occur & the

greater the crises are.

Free Markets are what Rich countries want Poor countries to adopt, so that we can go in & buy up

all their businesses when they privatize & make a killing riding the boom busts of the cycle.

Free markets work.

Parasites know this, and tell you that's what they are doing as they practice mercantile statism.

Communism doesn't work, but they are happy to tell you that they are doing that as they practise mercantile statism as well.

The parasites remain and will tell you anything you want to hear, until humans grow up and abandon the state.

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