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Austrian Business Cycle Theory: A Corporate Finance Point of View

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Tags Booms and BustsBusiness Cycles

07/30/2014Paul F. Cwik

Volume 11, No. 1 (2008)

 

The Austrian business cycle theory (ABCT) has been criticized for not being a true theory of the business cycle. The main emphasis of the ABCT has been on the theory of the upper-turning point—the artificial expansion of credit, the manipulation of interest rates, the malinvestments committed by entrepreneurs and then the credit crunch and/or real resource crunch. The paper provides an illustration (from a corporate finance point of view) of how a company, by following market signals, will launch a project that is a malinvestment. The paper then demonstrates how a company can take a failing component from another business and turn it into a viable operation via the liquidation process. This paper then demonstrates how the Austrian theory can make superior recommendations for policies (through the usage of the liquidation process) to help stimulate economic recovery.

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Contact Paul F. Cwik

Paul Cwik is Professor of Economics and Finance at the University of Mount Olive and Teaching Professor of the BB&T courses in Free Market Economics at North Carolina State University.

Cite This Article

Cwik, Paul. "Austrian Business Cycle Theory: A Corporate Finance Point of View." The Quarterly Journal of Austrian Economics 11, No. 1 (2008): 60–68.

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