Is the business cycle a creation of the Central Bank, or is the business cycle just amplified by thier manipulations?
Theoretically I can see the latter as being more appealing, however, I feel that in the modern sense the business cycle is entirely a banking phenomenon.
I know JasonC has some different interpretations and fundamentally I agree with him, your business cycle won’t head into recession without some sort of Schumpeter shock, but a Schumpeter shock should not cause a recession; there must be something that brings a Schumpeter shock into the full business cycle. The business cycle, I feel, is most aptly expressed by the Austrians, but I do not necessarily take it for granted that economic stagnation or decline can not also be the cause of other factors within the real world.
I agree with Niccolo. The free economy will always include a measure of instability; it takes an institution like a central bank to spawn full-blown business cycles.
Between 1836 and 1913, The US had no central bank. The business cycle was still live and well. I understand the central banks role in todays business cycle. The money supply can increase or decrease in different ways that aren’t controled by a central bank. A gold rush is an increase in the money supply.
Land speculation could aslo cause a boom and bust even without interest rates being manipulated. http://www.foldvary.net/works/geoaus.html
So that’s what he has been going on about? Schumpeter’s view that only through fractional reserve credit can innovation and advancement be financed?
Famine, plague, war, competitive innovation undercutting ‘key’ industries, yeah nobody denies that, but is that really a business cycle?
The business cycle occurs when a boom occurs followed by a recession without there being an external stimulus. A depression caused by an atomic bomb is not a business cycle phenomenon. Once we establish that, it follows that the business cycle is a product of central banking.
Error cycles are caused by all state intervention since they are irrarional ex ante. The business cycle caused by fractional reserve banking and fiat money is purely a particular manifestation of it.
See Hulsmans Toward a General Error Cycle Theory
Business cycles are primarily caused by fractional reserve banking and the creation of fiduciary media by banks. Thus business cycles will still exist (and did so in the past) without a central bank unless the practice of fractional reserve banking is abolished and recognized for what it is: counterfeiting.
Central banks allow banks to engage in reckless lending practices without allowing them to fail, and greatly increase the opportunity for expanding the money supply, thereby exacerbating the problem.
Oh no. Not this fallacy again!
Let’s take a look at the recessions (not panics, mind you, recessions) between this time period,
1839 - Caused by earlier bank inflation and printing off treasury notes to pay for government funds and expeditions, Central bank involved: Second Bank of the United States, State banks, and governments.
1873 - Post-Civil War depression, National Bank Acts of 1863,4, and 5 result in cartel and defacto central bank.
Late 19th century and 1907 both caused by the National Banking system prepared by Republicans in office. Government intervention in the liquidity markets and fractional-reserve systems promoted by governments caused inflation, though due to a lack of a de jure central bank the recoveries are quicker.
You know, I still keep in touch with my relatively decent high school economics teacher. When we talked about central banking, he told us that the only phrase we needed to answer questions about the effects of central bank policy were “lag time.” This idea that it’s reasonable to say “here’s a recession without a central bank” when there was a central bank shortly before the time frame indicated strikes me as complete ignorance of lag time.
1839 - Caused by earlier bank inflation and printing off treasury notes to pay for government funds and expeditions, Central bank involved: Second Bank of the United States, State banks, and governments.
That bust was caused by the central bank.
1873 - Post-Civil War depression, National Bank Acts of 1863,4, and 5 result in cartel and defacto central bank.
The book I read did not include any information on those acts.
The consensus seems to be fractional reserve banking is the culprit for the business cycle.
I was wondering if land speculation, not influenced by the central bank, would lead to a boom and bust cycle. That is the theory provided by georgists economists. http://www.foldvary.net/works/geoaus.html