Hello,
I am very new to Austrian economics. I learned of this school only about 3 months ago, and I’ve just finished reading my first two books on the topic. I have not yet read material from other schools.
I have encountered the idea that the boom and bust cycles are mainly caused by government intervention. The boom part of the cycle can be caused by the Fed increasing the money supply with low interest rates.
I am not sure this idea is legitimate. My concern is related to measuring the boom or bust according to actual volume of production and services, rather than by monetary statistics which so easily change with prices and money supply.
I would expect that the total volume production and services cannot change rapidly - unless unemployement is suddenly reduced. A boom, however, might involve redirection of the scarce resources availalbe for production from one product to another product. If the boom, in fact, is merely the redirection of resources and total production volume remains about the same then the word “boom” is a poorly chosen label.
Is there any book or article which explains the Austrian view of the boom period, and whether or not there really is a substantial increase in production during the boom?
Thanks
Peter
I’m not sure that’s strictly correct. The boom is precipitated by artificially low interest rates, usually letting previously submarginal entrepreneurs now embark on projects that they perceive are viable due to lower interest rates. There is the belief that there is more wealth to put to use (this is an illusion.) Most of these projects are sensitive to interest rates and take prolonged periods of time to complete. By the time it is realized that the boom was predicated on an illusion, it is too late, and there will be a scramble between the lower order and higher order industries for funds. So production does increase, without any real basis for doing so, and this will culminate in many incomplete projects,
Jon, Thanks for replying. In my work over the past few years, I have carried some smaller projects for venture capitalists which were quite probably only possible by low interest rates. These projects are now likely among those “incomplete” for either technical or financial reasons.
My work on the venture capital projects had the consequence that I could not instead have worked on more ordinary tasks. From my personal experience I’m not seeing a production increase due to the venture capital (expecting overtime hours). Rather my work is simply redirected to from one type of task to a different type of task. My overall productivity probably remains more or less the same with or without the “boom”. I’m not yet seeing is how real production increases in “the boom” times, since I could only have produced for jobs funded by low interest rates, by depriving other customers of services during that period. (i.e. I cannot work on two tasks simultaneously.).
The initiation of projects that would not have started absent interest rates is the increase in production in question, i.e. the lengthening of the production structure. As for productivity, that’s a different matter. The ABCT is focused on production of the sort I just mentioned, not so much increases in productivity itself.