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Capital Based Macroeconomics: Boom and Bust in Japan and the U.S.

Tags Capital and Interest Theory

07/20/2005John P. Cochran

Some economists and the financial press believe that the U.S. in the 1990s and Japan in the 1980s experienced economic growth driven by a positive productivity shock. The economic growth was accompanied by growth of money and credit aggregates. Proponents of real business cycle considered the money growth benign, while adherents of the natural rate theory viewed it as beneficial because either the price level was stable or inflation rates were extremely low. A capital-based-macroeconomics shows how and why the accompanying growth of money and credit with or without declining interest rates was neither beneficial nor benign. Credit creation sets up the economy for a boom and eventual bust. In the case, first of Japan and then the U.S., the ‘boom’ was followed by a ‘bust’ in their respective asset markets and the real sectors of the economy.


Contact John P. Cochran

John P. Cochran (1949-2015) was emeritus dean of the Business School and emeritus professor of economics at Metropolitan State University of Denver and coauthor with Fred R. Glahe of The Hayek-Keynes Debate: Lessons for Current Business Cycle Research. He was also a senior fellow of the Mises Institute and served on the editorial board of the Quarterly Journal of Austrian Economics.


Indian Journal of Economics and Business, June 2004. By John P. Cochran, Noah Yetter, and Fred R. Glahe.