Argumentation:ABCT

This highly experimental page is devoted to the attempt to create an argumentation chain for the Austrian Business Cycle Theory. It is not intended to cover every possible angle, merely to build up one (or more) ways to explain ABCT. People may pick up any part in their own argumentation.

General assumptions

Money is not wealth

In everyday life money is a good indicator for wealth and is sometimes seen as the same thing. For an extreme example of why it isn't the case, check the hyperinflation in Zimbabwe or Weimar Germany.

The value of money is subjective, it is what people can expect to exchange it for. Having more money does not necessarily mean you will be able to buy more for it.

Business cycle as a historical fact

Enterpreneurs try to predict the future state of the market (consumer demand, prices of their inputs, etc.) and plan accordingly. Of course, sometimes they fail - that is only human and predicting the future is always hard.

What is known as the bust - a part of the business cycle - is not simply failure. It is a large number of failures, coming apart at the same time, coupled with a general downturn in economic activity. The bust is preceded by a boom - an increase in economic activity, often later perceived as unhealthy or speculative in nature. The regularly occurring booms and and busts were observed from approximately late eighteenth century.

Economic growth and the interest rate

Lowering of interest rate with increased savings

availability of resources -> capital
uncovered demand
signal for enterpreneurs to invest (always a potential for failure)
signal for consumers that it is easier to borrow

Monetary policy

Perfect creation of new money

perfect doubling of the money supply (Angel Gabriel theory by David Hume)
nothing happens but prices double

Creation of new money in reality

impacts: growth, interest rate, transfer of growth
signal to enterpreneurs to invest more
signal to consumers to borrow more
malinvestment
business cycle