Quarterly Journal of Austrian Economics
Austrian Business Cycle Theory: Evidence from Kansas Agriculture
Volume 18, Number 1 (Spring 2015)
ABSTRACT: The popularity of the Austrian Business Cycle Theory (hereafter ABCT) continues to grow in both the popular press and the mainstream of the economics profession. That the ABCT is increasingly subjected to conventional empirical analysis is a testament to its intuitive appeal. In first-world economies, the agriculture sector is characterized by investment in expensive and highly-specialized equipment. While some agricultural products are “close to consumption,” the network of highly specialized processing and transportation equipment necessary for the functioning of modern agriculture indicates that this sector is characterized by more roundabout production processes. Since the ABCT is primarily a theory of malinvestment in the more roundabout stages of production, analysis of the agricultural sector of the economy is relevant to the study of ABCT. This paper examines data for the production agriculture industry to determine whether business cycles in industry are consistent with the ABCT. Time series analysis using vector autoregression and other methods is conducted. Results are mixed, but strong arguments in favor of ABCT effects in agriculture are made.