I can understand needing to appeal to mainstream and/or field-specific terminology. And there’s nothing wrong with using common terms, as it’s not as if Austrians don’t have any use for them. The only difference is Austrians are going to use extra terms sometimes to describe details of things that other schools of thought will not. For example, as I was saying here (#5 in that post), other methodologies do not recognize capital structure. In fact they do not really have much of a capital theory at all. Where Austrians understand there is a structure at work (i.e. higher and lower order stages of production), and that goods don’t just appear out of nowhere just because there is a demand, mainstream models just clump everything together into a “capital” category. This is why Woods elects to use the more descriptive and specifc term “factors of production”…because he’s not just talking about “raw materials” (aka “resources”). It refers to not only the resources, but it implies their link in a chain of stages.
And regardless of whether your audience recognizes this facet of the economy or not, it exists, and they should. Just because the mainstream doesn’t incorporate it into their models doesn’t mean you shouldn’t be talking about it with them or should be apprehensive about using terminology they may be unfamiliar with. This is the entire point of sharing these ideas…because most of these people have never even heard these explanations. (I don’t know how well-aquainted you are with mainstream academia, but you may be surprised…even members in here could recount story after story of guys they know who’ve received PhD’s in economics from top schools who’ve never heard of Mises. They get handed a copy of Prices and Production or Theory of Money and Credit and come back and say “wow…I wish they would have taught me some of this.” I knew a top economics professor at one of the largest universities in the country who had never heard of F.A. Hayek. I may be preaching to the choir, but obviously the point is people need to be introduced to this stuff, and just because they have credentials doesn’t mean they’ve even been exposed to it…let alone understand it.)
So the point in all this is, don’t be too apprehensive about using terms that may only be familiar within Austrian explanations. Even non-economists need to have a basic economic understanding. And I can understand if you need to throw in some marketing terminology or whatever will help engage your audience and help them understand, but use that language to help bring them closer to your world…don’t try to shrink yours to fit into theirs. As Mises said: “Economics must not be … left to esoteric circles. It is the philosophy of human life and action and concerns everybody and everything. It is the pith of civilization and of man’s human existence.”
As for your draft there, it seems out of order. And some things don’t seem to add up the way you’re saying them. For example, your first reason for why businesses invest in long-term projects when interest rates are low, really isn’t one. Or at least the reason isn’t clear from your answer. In fact that whole twofold thing almost comes out as a non sequitor. I would put it something more like this:
As interest rates go down, businesses are more likely to invest in long-term projects. The reason for this is, as Huerta de Soto notes, when interest rates are lower, “the flow of rents they are expected to produce increases in value when discounted using a lower market rate of interest” (1999, p. 349). This means a decrease in the interest rate results in an increase in the present value of capital goods…meaning they are a more attractive investment. In other words, the cost of capital is lower, so the expected returns are of greater value, which means the capital goods themselves can be viewed as more valuable. And as would be expected, the more long-term the investment is, the more interest rate-sensitive it will be…which means even slight movements in the cost of funds can have a significant impact on the perceived profitability of such an investment.
The Austrian Business Cycle Theory distinguishes between higher-order and lower-order stages of production. Higher-order stages of production (e.g., R&D, mining, manufacturing) are farther removed from consumption, while lower-order stages are closer to consumption (e.g., retailing, services). When individuals in the market consume less and save more, the pool of loanable funds grows, driving down the interest rate. This serves as a signal—in the form of the increased profit potential mentioned above—to the market that resources are being freed up from the lower order stages. (If we recognize that savings=underconsumption, it can be understood that an increased pool of loanable funds equals an increased amount of available (scarce) resources that can now be used in some other area…namely, a higher order stage in the production process…farther removed from consumption.) Put another way, the time preference of consumers for present goods has lowered, and they are now more willing to forego current consumption in return for an expected increased satisfaction in the future.
Thus, the interest rate coordinates the structure of production between the time preference of consumers in the market and the producers at various stages in the supply chain.
However, when the supply of loanable funds is increased artificially by an expansion of bank credit, interest rates are artificially surpressed. In this case, consumers have not expressed a preference for future goods over current ones. They have not abstained from present consumption, and therefore have not freed up any resources from the lower order stages. However, there is no way for producers of the higher order stages to know this. There is virtually no way to distinguish between this artificial credit expansion and a geniune increase in the pool of available resources. As a result, businesses in these longer-term sectors will move to expand, just as they normally would in a lower interest rate environment. The issue is, of course, in this case the resources necessary to facilitate this expansion have not been freed up at all. They are still in commission in the lower stages where consumers are focusing their shorter (aka higher) time preference.
As can be expected, the result is a large degree of what Ludwig von Mises called “malinvestment”…which is an investment in wrong lines which leads to capital losses. In short, projects are undertaken for which the physical factors of production necessary to complete them are not available. It is akin to beginning construction on a house in a situation where there are not enough bricks to complete it. But these mistakes historically go unnoticed for quite some time, and the artificial increase in credit allows firms to bid up the prices of these assets to high levels, creating a bubble, in which a sector of the economy is grossly overvalued. These errors are generally revealed when the central bank that created the credit expansion “turns off the spigot” so to speak, and interest rates are allowed to rise…leading to the inevitable “bust” part of the cycle in which the malinvestments are exposed and a restructuring of the economy begins to take place.
You may need to shorten that some but I think if you put it in that order it flows more smoothly and allows for a more linear progression through the cycle that is easy to follow…especially for a non-economics audience. Lemme know what you think.
Minor tip: Never put “ly” on the end of your “first, second…” kind of list. It just sounds pedestrian and those aren’t really words. The only reason you might find them in a dictionary is because "rather than defining words as some experts thought they should be used, dictionaries have moved toward defining words as people actually use them.” But that doesn’t mean everyone has to sound uneducated. 