The Natural Cycle: WHY Economic Fluctuations are Inevitable. A Schumpeterian Extension of the Austrian Business Cycle Theory
DOI:
https://doi.org/10.6000/1929-7092.2014.03.16Keywords:
Austrian Economics, Hayek, Schumpeter, Business Cycles, Expectations, Innovation.Abstract
The conventional version of Austrian business cycle theory focuses on a temporary imbalance between natural and monetary rates of interest. When, because of the role of monetary authorities in defining the monetary rate, the two values are in a situation of imbalance, the resulting expansion stage is followed by a recession. On the other hand, if instead the expansive phase arises without any interference by monetary authorities but through re-adaptation of the productive structure to a modified structure of temporal preferences, a period of sustainable growth begins that will not be followed by a crisis. The purpose of this essay is to demonstrate, on the other hand, that because of profit-expectations and the combined action of Schumpeterian elements (imitations-speculations and the ‘creation of money' by banks), even a so-called ‘sustainable' boom will be affected by a liquidation and settling crisis. What distinguishes the latter situation from the conventional case of imbalance between monetary and natural rates is not the onset or otherwise of a crisis but, rather, its intensity and duration. We will define as natural an economic cycle characterised by a stage of expansion considered to be ‘sustainable' in the Austrian theory but followed by an inevitable readjustment crisis.
References
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Steele, G. R. 2001. Keynes and Hayek. The money economy. London, UK and New York, NY: Routledge.
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Vitello, Vincenzo. 1965. “Teoria dello sviluppo capitalistico. L’analisi di J. Schumpeter: analogie e differenze rilevanti con quella di K. Marx”. Pp. 38-54 in Il pensiero economico moderno. Rome, Italy: Editori Riuniti.
Ferlito, Carmelo. 2010. Dentro la Crisi. Combattere la Crisi, Difendere il Mercato. Chieti, IT: Solfanelli.
Ferlito, Carmelo. 2013. Phoenix Economics. From Crisis to Renascence. New York, NY: Nova Publishers.
Hayek, Friedrich A. von. 1929. Monetary Theory and the Trade Cycle. New York, NY: Kelley, 1966.
Hayek, Friedrich A. von. 1931. Prices and Production. New York, NY: Kelley, 1967.
Hayek, Friedrich A. von. 1932. “A Note on the Development of the Doctrine of “Forced Saving””. Quarterly Journal of Economics XLVII: 123-133.
Hayek, Friedrich A. von. 1933. “Price Expectations, Monetary Disturbances and Malinvestments”. Pp. 135-136 in Profits, Interest and Investment and Other Essays on the Theory of Industrial Fluctuations. By F.A. von Hayek. Clifton, NJ: Augustus M. Kelley, 1975.
Hayek, Friedrich A. von. 1937. “Economics and Knowledge”. Pp. 35-56 in Individualism and Economic Order. By F.A. von Hayek. Chicago, IL: University of Chicago Press, 1958.
Hayek, Friedrich A. von. 1939. “Profits, interest and Investment”. Pp. 3-71 in Profits, Interest and Investment and Other Essays on the Theory of Industrial Fluctuations. By F.A. von Hayek. Clifton, NJ: Augustus M. Kelley, 1975.
Hicks, John R. 1979. “Is Interest the Price of a Factor of Production”. Pp. 281-295 in Modern Austrian Economics. Archaeology of a Revival. Vol. II, The Age of Dispersal, edited by P. Boettke and S. Boehm. London, UK: Pickering & Chatto, 2002.
Huerta de Soto, Jesús. 1998. Money, Bank Credit, and Economic Cycles. Auburn, AL: Ludwig von Mises Institute.
Huerta de Soto, Jesús. 2000. The Austrian School. Market Order and Entrepreneurial Creativity. Cheltenham and Northampton, UK: Edward Elgar, 2010.
Kirzner, Israel M. 1973. Competion & Entrepreneurship. Chicago, IL: University of Chicago Press.
Kurz, Heinz D. 2003. “Friedrich August Hayek: la teoria monetaria del sovrainvestimento”. Pp. 175-207 in Friedrich A. von Hayek e la Scuola Austriaca di Economia. Edited by U. Ternowetz. Soveria Mannelli, IT: Rubbettino.
Lachmann, Ludwig M. 1940. “A Reconsideration of the Austrian Theory of Industrial Fluctuations”. Pp. 267-286 in Capital, Expectations, and the Market Process. By L.M. Lachmann. Kansas City, KS: Sheed Andrews and McMeel, 1977.
Lachmann, Ludwig M. 1943. “The Role of Expectations in Economics as a Social Science”. Pp. 65-80 in Capital, Expectations, and the Market Process. By L.M. Lachmann. Kansas City, KS: Sheed Andrews and McMeel, 1977.
Lachmann, Ludwig M. 1976. “From Mises to Shackle: An Essay on Austrian Economics and the Kaleidic Society”. Journal of Economic Literature 14 (1): 54-62.
Lachmann, Ludwig M. 1979. “Comment: Austrian Economics Today”. Pp. 64-49 in Time, Uncertainty, and Disequilibrium. Exploration of Austrian Themes. Edited by M.J. Rizzo. Lexington, D.C.: Heath and Company.
Lachmann, Ludwig M. 1982. “Why Expectations Matter”. Pp. 251-269 in Modern Austrian Economics. Archaeology of a Revival. Vol. I, A Multi-Directional Revival, edited by S. Gloria-Palermo. London, UK: Pickering & Chatto, 2002.
Lachmann, Ludwig M. 1986. The Market as Economic Process. Oxford: Basil Blackwell
Lewin, Peter. 1997. “Capital in Disequilibrium: A re-examination of the capital theory of Ludwig M. Lachmann”. Unpublished draft.
Lewin, Peter. 2005. “The Capital Idea and the Scope of Economics”. The Review of Austrian Economics 18 (2): 145-167.
Moss, Lawrence S. 2005. ”The applied economics of the modern Austrian School”. Pp. 3-19 in Modern Applications of Austrian Thought. Edited by J.G. Backhaus. London, UK and New York, NY: Routledge.
Nasar, Sylvia. 2011. Grand Pursuit. The Story of Economic Genius. New York, NY: Simon & Schuster.
O’Driscoll, Gerald and Mario J. Rizzo. 1985. The Economics of Time and Ignorance. London, UK and New York, NY: Routledge, 2002.
Rizzo, Mario J. 1979. “Disequilibrium and All That: An Introductory Essay”. Pp. 1-18 in Time, Uncertainty, and Disequilibrium. Exploration of Austrian Themes. Edited by M.J. Rizzo. Lexington, D.C.: Heath and Company.
Rothbard, Murray N. 1969. Economic Depressions: Their Cause and Cure. Auburn, AL: Ludwig von Mises Institute, 2009.
Schumpeter, Joseph A. 1911. The Theory of Economic Development. New Brunswick, NJ, and London, UK: Transaction Publishers, 1983.
Schumpeter, Joseph A. 1939. Business Cycles: A Theoretical, Historical and Statistical Analysis of the Capitalist Process. Chevy Chase, MD and Mansfield Centre, CT: Bartleby’s Books and Martino Publishing, 2005.
Schumpeter, Joseph A. 1964. Business Cycles. A Theoretical, Historical and Statistical Analysis of the Capitalist Process. Abridged Edition. With an introduction, by Rendigs Fels, digital edition, un document produit en version numérique par Didier Lagrange, 2008.
Spiethoff, Arthur. 1925. “Business Cycles”. Pp. 109-205 in Business Cycle Theory. Selected Texts 1860-1939. Vol. II, Structural Theories of the Business Cycle, edited by H. Hagemann. London, UK: Pickering & Chatto, 2002.
Steele, G. R. 2001. Keynes and Hayek. The money economy. London, UK and New York, NY: Routledge.
Sylos Labini, Paolo. 1954. “Il problema dello sviluppo economico in Marx e Schumpeter”. Pp. 19-73 in Problemi dello sviluppo economico. By P. Sylos Labini. Bari, IT: Laterza, 1977.
Vitello, Vincenzo. 1965. “Teoria dello sviluppo capitalistico. L’analisi di J. Schumpeter: analogie e differenze rilevanti con quella di K. Marx”. Pp. 38-54 in Il pensiero economico moderno. Rome, Italy: Editori Riuniti.
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Published
2014-07-07
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Ferlito, C. (2014). The Natural Cycle: WHY Economic Fluctuations are Inevitable. A Schumpeterian Extension of the Austrian Business Cycle Theory. Journal of Reviews on Global Economics, 3, 200–219. https://doi.org/10.6000/1929-7092.2014.03.16
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