The Recession of 1990: An Austrian Explanation

Why do we have booms and recessions? The conventional Keynesian view is that recessions are a failure of consumer demand. Keynesians, however, are not entirely clear on why consumers periodically act in unison to reduce their consumption. A more logical answer to the question is the Mises-Hayck theory of the business cycle. The ideas of Ludwig von Mises and Friedrich A. Hayek, central to the Austrian school of economics, suggest an entirely different approach to the business cycle from what has become the conventional wisdom for the last 40 years. It is the purpose of this paper to explore the Austrian explanation of the business cycle, sometimes called the Austrian business cycle theory (ABCT), and to apply that theory to the recession of 1990-1992.