Quarterly Journal of Austrian Economics

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Explaining Malinvestment and Overinvestment

  • The Quarterly Journal of Austrian Economics

Tags Business CyclesCapital and Interest Theory

07/30/2014Larry J. Sechrest


Volume 9, No. 4 (Winter 2006)


Mainstream macroeconomists may—-and do—-disagree with such an assessment, but Austrian macroeconomists rightly consider the Misesian/Hayekian theory of the business cycle to be one of the signal achievements of the entire Austrian School of thought. This Austrian business cycle theory (ABCT) offers a unique perspective on the destructive array of private sector incentives created by central bank manipulations of the supplies of money and credit. ABCT is essentially a theory of unsustainable economic expansions, that is, macroeconomic expansions that must unavoidably be followed at some point by macroeconomic contractions. At the center of this scenario is the phenomenon of malinvestment. Thus, in order to explain ABCT one must be able to convey in what malinvestment consists. In the past, Austrians have usually done this either entirely by means of verbal explication or with the assistance of certain unconventional constructions such as Hayekian triangles.


Larry J. Sechrest

Larry Sechrest (1946–2008) was professor of economics at Sul Ross University, adjunct scholar of the Mises Institute, and author of Free Banking: Theory and History of a Laissez-Faire Model.

Cite This Article

Sechrest, Jarry J. "Explaining Malinvestment and Overinvestment." The Quarterly Journal of Austrian Economics 9, No. 4 (Winter 2006): 27–38.

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