Originally posted on jesscarswell:
“…the Misesian theory of the business cycle accounts for all of our puzzles: The repeated and recurrent nature of the cycle, the massive cluster of entrepreneurial error, the far greater intensity of the boom and bust in the producers’ goods industries.”
– Murray N. Rothbard, “Economic Depressions: Their Cause and Cure“
Firstly, why is the cycle repeated and recurrent in nature?
The Keynesians assume that the cause of the business cycle is endogenous to the free market, yet have no causal explanation for this assumption.
The Austrian Theory of the Business Cycle (ABCT) explains that the boom is caused by government issuing cheap credit. The problem is, that – unlike here, where the capital structure lengthens due to a lowering of real time preferences, – when cheap credit is issued, the capital structure also extends in a similar fashion, but it is due to false price…
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