No sir. A consumption good is one that is used to directly satisfy a human want. Consumer spending is spending on consumer goods. In contrast, a capital good is used to help produce consumer goods or other capital goods. Someone may purchase capital goods for their own personal amusement, in which case they could be regarded as consumer goods, just like someone might enjoy his job, regardless of his pay. But these cases are a small sample, and they are only a fraction of the value. Most investments only satisfy the investors desire by making him a profit - the goods themselves are only useful in that they produce other goods, that are valued by other people. Eventually, the value of all these goods is derived from how much consumers value the final consumption goods at the end of this chain.
You implied that the interest rate was determined by the consumption/saving ratio. I don’t see how this can be true. I would think the level of borrowing to buy productive goods would also affect the interest rate.
I am not sure about the interest rate’s affect on the profit rate, but I would assume not. It would encourage more investment, so in the sense that the supply goes up, the price goes down, profits would shrink; but there’s not a fixed demand in investment. Some investments create brand new technology, creating new demand where it didn’t exist before.
Then I’m not convinced that the interest rate would have a natural tendency to go down over time. High profits would increase the demand for credit, driving the interest rate up.
Austrian Business Cycle is not dependent on fiat currency, or technically even central banking, although both these conditions can worsen the severity of business cycles. Keep in mind the 1800’s had two national banks, and the post-civil war era to the creation of the Federal Reserve was known as the national banking era. All of these encouraged fractional reserve banking from a top-down scheme. The national banks WERE central banks. In the nat’l banking era, the large New York banks were virtually a cartel central bank.
But the impression I got from your previous arguments was not that fractional reserve banking causes the business cycle in itself, but that the manipulation of the interest rate by a central authority causes it. In addition, you said that the interest rates gradually went down throughout the period preceding WWI. The first graph here seems to indicate that that is not true. Now we could acknowledge that the interest rate was manipulated during that period, but then I’m not sure what the deal with the Fed and fiat currency is.
A better comparison would be the Free banking era to the others, and it actually has a good history. moreover, business cycles during the 1800’s were not as severe, long, and perhaps even as frequent as the 1900’s. Rothbard’s History of Banking is a must read on this account. For instance, some 19th century “depressions” according to economic history actually show low unemployment with average income increasing year over year.
Hmm, this isn’t the impression I’ve always gotten. First off, I’m not sure how good a barometer the unemployment rate is for an era that was much less capitalist. According Wikipedia, the US labor force was 80% agricultural in 1800 and 50% in 1850. Considering that this was made up of mostly small independent farmers with their own land and slaves, it would be pretty hard for them to ever become “unemployed.” So in 1850, an estimated 5% of the workforce was unemployed. That’s 1/10th of the people that could be unemployed. So the rate is fairly comparable to today. In addition, Wikipedia notes that during the 1800’s “unemployment outside of agriculture was as high as 80%.” Then there were depressions like the Panic of 1893 where the overall unemployment rate reached as high as 18%. As far as length, the Panic of 1837 during the Free Banking Era was the second longest depression in American history.
In comparison, average worker income has stagnated in real terms since 1970, when our currency was made fully fiat.
Some people here on this site disagree with that. Still, I’m not sure why you mention fiat here and then say that fractional reserve banking is the real issue.
The root of the business cycle is lowering of the interest rate by the creation of new money originating into circulation as bank loans. In short, fractional reserve banking. To the extent a free market allows this, the business cycle is part of the market economy. However, the main problem with business cycles has always been government endorsement, subsidy, or direct practice of fractional reserve banking.
So in a free market with fractional reserve banking and no central authority dictating the interest rate, the interest rate would still fluctuate?