Quarterly Journal of Austrian Economics
The Poverty of Modern Macroeconomic Theory and Power of Austrian Business Cycle Theory
Volume 13, Number 3 (Fall 2010)
This paper contrasts mainstream analysis of the recent boom/bust episode and its massive interventions with Austrian business cycle theory (ABCT). Mainstream economists remain lost in the Keynesian jungle, and economists in the vein of Irving Fisher, Milton Friedman and Martin Feldstein have not helped. The blinkered approach favored by the economics profession ignores the business cycle theory pioneered by Ludwig von Mises and deepened by successors like Murray Rothbard and Jesús Huerta De Soto. Defying standard economic theory, economists implicitly believe that artificially low interest rates (wrong prices) and debt piled on debt unbacked by real savings do no harm to resource allocation and employment. Attempts to hasten economic growth via monetary policy must prove self-defeating by seducing businesses to over invest in higher stages of production and under invest in lower stages. The recession is the realignment of the production structure with consumer wants. “Without a sound capital theory, macroeconomics is incomprehensible,” as Larry J. Sechrest wrote.
Cite This Article
Reynolds, Morgan O. "The Poverty of Modern Macroeconomic Theory and Power of Austrian Business Cycle Theory." The Quarterly Journal of Austrian Economics 13, No. 3 (Fall 2010): 11-41.