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The Austrian Theory of the Business Cycle

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  • Fred E. Foldvary

Abstract

The Austrian school theory of the business cycle is based on the proposition that an artificial expansion of the money supply reduces the transaction rate of interest below its natural rate, which stimulates excessive investment in capital goods of long duration, and then when the rate of interest rises back up, these investments stop, and the economy falls into recession.

Suggested Citation

  • Fred E. Foldvary, 2015. "The Austrian Theory of the Business Cycle," American Journal of Economics and Sociology, Wiley Blackwell, vol. 74(2), pages 278-297, March.
    • Handle: RePEc:bla:ajecsc:v:74:y:2015:i:2:p:278-297
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    References listed on IDEAS

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    1. Garrison, Roger W., 1984. "Time and money: The universals of macroeconomic theorizing," Journal of Macroeconomics, Elsevier, vol. 6(2), pages 197-213.
    2. Barry Eichengreen & Kris J. Mitchener, 2004. "The Great Depression As A Credit Boom Gone Wrong," Research in Economic History, in: Research in Economic History, pages 183-237, Emerald Group Publishing Limited.
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    Cited by:

    1. Burenin, Aleksey N. (Буренин, Алексей), 2017. "On the Inevitability of Economic Crises in the Modern Market Economy [О Неизбежности Экономических Кризисов В Современной Развитой Рыночной Экономике]," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 5, pages 8-21, October.

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