Whereas the
text concedes, that economic downturns and shocks can be caused by many events –
famine, plague, seizure of bullion, bank runs, war, heavy taxation to name a
few – it holds the Austrian Theory up as the only one explaining the business cycle.
Having disputed Keynesian arguments in Chapter II, several others are disregarded
at the following pages.
General Overproduction: Given free markets, such a thing
should not exist, as prices will fall and shelves will be cleared from stock.
There might be a problem of cost-price differentials, but the cluster of errors
and the bidding up of factor prices is explained by the Austrian Theory.
Underconsumption: Rothbard states that the desire for goods cannot go away indefinitely and that it is even hard to argument for people not wanting a better standard of living all the time. Conceding the structure of consumption could change from less consumer goods to more capital goods, this would lead to falling prices, but still a higher living standard.
The Acceleration Principle: the principle itself is not very interesting, but the argumentation around it has a point of high value. You cannot come to a general theory of business cycle by explaining the progress on a single firm level on the one side, or by using aggregates for the economy as a whole. Doing so, you put aside the important interrelations between participants in the market – thus putting aside the mechanism that will do all the adoptions to different outlooks and situations.
Dearth of “Investment Opportunities”: Causal factors claimed by the supporters of this theory are insufficient rate of population growth, lack of resources, and inadequate technical innovation. Rohtbard does away with these factors being causal for investment and – as for the acceleration principle – makes us aware that the whole argument lacks any description of a price system.
Schumpeter’s Business Cycle Theory: Rohtbard concedes that Schumpeter’s theory at least is a general economic theory, but with a postulate of zero rate interest, discarding consumer taste, dispensing new resources and ignoring time preferences. The possible element of change remaining is technological innovation.
Qualitative Credit Doctrines: Those are described as having something in common with the Austrian Theory: seeing the negative in the boom, wanting to prevent them before they begin, and evaluation the bust as the necessary corrective action that has to follow. But they differ in the causal analysis.
Overoptimism and Overpessimism: Economic expectations are described as self-correcting, not self-aggravating and thus not causal to the cluster of error in a boom-bust cycle. Optimism and pessimism typically last until after the trend change, thus not being causal.
Underconsumption: Rothbard states that the desire for goods cannot go away indefinitely and that it is even hard to argument for people not wanting a better standard of living all the time. Conceding the structure of consumption could change from less consumer goods to more capital goods, this would lead to falling prices, but still a higher living standard.
The Acceleration Principle: the principle itself is not very interesting, but the argumentation around it has a point of high value. You cannot come to a general theory of business cycle by explaining the progress on a single firm level on the one side, or by using aggregates for the economy as a whole. Doing so, you put aside the important interrelations between participants in the market – thus putting aside the mechanism that will do all the adoptions to different outlooks and situations.
Dearth of “Investment Opportunities”: Causal factors claimed by the supporters of this theory are insufficient rate of population growth, lack of resources, and inadequate technical innovation. Rohtbard does away with these factors being causal for investment and – as for the acceleration principle – makes us aware that the whole argument lacks any description of a price system.
Schumpeter’s Business Cycle Theory: Rohtbard concedes that Schumpeter’s theory at least is a general economic theory, but with a postulate of zero rate interest, discarding consumer taste, dispensing new resources and ignoring time preferences. The possible element of change remaining is technological innovation.
Qualitative Credit Doctrines: Those are described as having something in common with the Austrian Theory: seeing the negative in the boom, wanting to prevent them before they begin, and evaluation the bust as the necessary corrective action that has to follow. But they differ in the causal analysis.
Overoptimism and Overpessimism: Economic expectations are described as self-correcting, not self-aggravating and thus not causal to the cluster of error in a boom-bust cycle. Optimism and pessimism typically last until after the trend change, thus not being causal.
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