You make some interesting points, but an important element to your discussion that is conspicuous by its absense, is reference to Murray Rothbard’s Man Economy and State. In there, you will find substantial discussions on the structure of production - Chapters 5 through 9, and then Chapter 12, Section 11.B. Credit Expansion and the Business Cycle. This represents some 300 odd pages of indispensible reading on the subject that one must assimilate prior to an attempt at accurately discusing, let alone refuting the theory of the Austrian Business Cycle.
I suspect this is going to sound like a bit of a dodge to your points, however, since Rothbard’s elaboration of the theory is so good, and since I think it will allow you to reformulate your model somewhat into something valuable, I recommend it. On top of that, it will give you something to really sink your teeth into if you choose to critique it, and from there we can debate the subject on a more even playing field.
"that the main difference from savings induced growth and boom/bust is the fact that in saving the consumers postpone consumption and “release factors of production”
are you even comparing savings induced growth and boom/bust properly??
are you saying they are opposites???
a mine could go boom bust with excavated with savings, right??
These questions are perfect. I don’t know what school of thought you were originally interested in, but you sound like an Austrian economist to me! My responses will not be short, but I’ll try to keep them as short as possible.
Austrian capital theory is in fact the only capital theory which includes and incorporates the heterogeneity and complementarity of capital goods. The efficiency/productivity of capital is not only determined by its physical characteristics, but also by the remoteness of its employment, and how it is employed. Each capital good can be used in a myriad of ways, also known as a “capital combination;” the role of the economic system is to assure that all capital goods are used most efficiently, that is, for the most productive capital combination. Indeed, Hayek’s main point is that specific capital goods and labor are diverted away from their most warranted employments towards relatively (or absolutely) unwarranted employments, which are only profitable under the guise of pseudo-profits (inflation). And the complementarity and heterogeneity of capital is the central focus of Mises’ “calculation argument.” I suggest “Capital and Its Structure” by Ludwig Lachmann.
Furthermore, the notion of capital as a self-replenishing blob which can “flow” from one market to another comes from the Chicago school of economics, namely, Frank Knight. If you wish to read an Austrian refutation of this position, I suggest “The Mythology of Capital” by F.A. Hayek. Your criticism is entirely valid; unfortunately, it’s not aimed at the Austrian school. The point of a recession is to liquidate portions of the malformed capital structure, freeing up capital goods for more warranted employments (melting down certain capital goods for scraps). The problem of the boom is that it structures capital in a very peculiar way, and the degree of capital heterogeneity and complementarity during the boom determines the severity of the bust (as well as government intervention)–or the restructuring process.
When a good is ready for final consumption then it is considered a “consumer” good, or a “present good.” But the physical characteristics of the good itself is immaterial–only the intended use of the good truly matters. For example, sugar may be a producer and consumer good–it depends on its employment. Sugar used for the production of candy is an intermediate producer good, but sugar used to sweeten coffee, for example, (which you’re about to consume) is a consumer good. But steel, for example, is almost always (if not always) a producer good–thus a fall in “aggregate demand” (to use clumsy mainstream terminology) should affect the price of sugar more than the price of steel (a relative increase in the price of the latter)
The original means of production are released (labor and land), while the capital goods are reallocated (again, some capital goods have to be scrapped entirely, depending on the degree of their complementarity and heterogeneity). The triangle is used for demonstrative purposes, but as savings increases (or what is called a fall in “aggregate demand”) resources shift from the lower stages towards the higher stages–the triangle contracts horizontally, but expands vertically (further division of labor). The resources are allocated towards the higher stages because a fall in “aggregate demand” affects lower stages more dramatically (most sensitive to demand for consumer goods–since they produce consumer goods), leading to a relative increase in the price of “higher order goods.” The relative increase in the price of producer goods, plus a lowered interest rate, is what redirects production towards higher phases of production (more capital intensive roundabout methods of production). See “Prices and Production” By F.A. Hayek
As savings increases, there is a shift in the demand for “future goods” relative to the demand for “present goods.” This increases the amount of capital intensity, which yields a higher productivity of labor (more goods produced). This allows for an increase in both consumption and savings in absolute terms. If the ratio between savings and consumption remains unchanged, then the structure will continue to expand vertically and horizontally. If the savings rate, in absolute terms, remains constant (leading to a relative increase in the demand for consumer goods), then the structure will cease lengthening, and will expand horizontally. The interest rate expresses this relationship–namely the demand for consumer goods (present goods) relative to producer goods (future goods).
Hayekian triangle: (Means-ends framework with time as an endogenous variable; inter-temporal allocations of resources) on page 228. The hypotenuse represents the original means of production (labor and land). The value of the original means of production are expressed by the horizontal projection of the hypotenuse, while the vertical dimension, measured in arbitrary periods from top to bottom, expresses the progress of time, so that the inclination of the line representing the amount of the original means of production are expended continuously during the whole process of production. The bottom line represents the total output of current consumption goods, and the area of the triangle shows the totality of the successive stages through which the several units of original means of production pass before they become ripe for consumption. The area of the triangle also shows the total amount of intermediate goods which must exist at any moment of time in order to secure a continuous output of consumer’s goods. As the average period between the application of the original means of production and the completion of the consumer’s goods increases, production becomes more capitalistic, and vice versa. The brackets at every level represent the rate at which the original means of production are employed in the production process. Revenue flows from bottom up, effecting the lower stages more relative to the higher stages–but the key is that for every firm in the lowest phase of production, there are a multiple of firms which produce the various inputs required for the production of the final consumer good (final output).
(I have not read the previous comments, so all of my points may have already been touched upon/fully elucidated).