The "Assumption" of Full Employment

Economics Economics Questions
1

I’m reading America’s Great Depression by Rothbard and I’m confused about a criticism that he briefly addresses (p.29), that the Austrian business cycle theory assumes the previous existence of full employment and is not relevant for credit expansion when there are unemployed factors.

Can someone elaborate on this criticism? I don’t understand the argument why the business cycle theory is not relevant for credit expansion in these circumstances. Is this basically saying that until there is full employment credit expansion is not artificial, and that only once full employment is reached is there any misallocation?

First post, by the way, so go easy on me.

2

First of all, are you familiar with Keynesian theory? Keynesians maintain that injecting money into a system lacking “full employment” serves to bring the market into balance (whereas under full employment it’d simply overheat the economy.) This is primarily with regard to price stickiness (downwards) in labour markets.

-Jon