Volume 9, No. 2 (Summer 2006)
ABC theory is founded on the concept of a sustainable, market-determined interest rate, and predicts negative consequences when that equilibrium is persistently disturbed. Economists and laypeople are well aware of these consequences: the periodic high unemployment associated with the business cycle. The policy prescriptions of the Austrian School are unmistakable: first, never disturb the interest rate with credit expansion or monetary inflation, and second, after the first policy prescription has been violated, never interfere with entrepreneurial planners’ efforts to liquidate suboptimal production plans as rapidly as possible. As long as economists and policy makers believe the business cycle can be avoided through the activism of charismatic central bankers, recessions will be inevitable.
