I understand the Austrian idea that fractional reserve banking(FRB) and artificially low interest rates(ALIR) create malinvestment which fuels the business cycle. This comes about because entrepreneurs are directed into longer stages of production (i.e. businesses that take a longer time to show ret…

I think you’re spot on. Im guessing that the lucky hot dog guy will finish his three stands on time and on budget and live happily ever after. But he’s not the only one out there. There will be plenty of people that go for the computer chip factory, and they will be in trouble eventually. Enough o…

OOOps, I missed the heart of your q. Is the guy foolish for building 3 hot dog stands instead of one? I think that’s what you are asking. Well there are dumb guys and smart guys. There will be people who build the 3 hot dog stands when they shouldn’t have. Easy money brings the stupid out of their …

No, you’ve independently hit on a crucial distinction: between lateral and longitudinal expansion. As Mises puts it in Human Action, Chapter 20, Section 6: "When under the conditions of credit expansion the whole amount of the additional money substitutes is lent to business, production is expande…

is a single hot-dog stand a relatively less roundabout way of making and selling hot dogs than three hot dog stands? (is a small bucket a less relatively roundabout way of fetching water than a bucket that is three times as big?) if so, maybe the categories of higher and lower order are still good…

Well I’m saying that three stands might still be a malinvestment.

one stand might be. malinvestments are identified by the losses they incurred and how the entrepreneurs that engaged in them went on to abandon them

@ Lilburne I’m not so sure. Wouldn’t higher order entrepreneurs tend to outbid lower order entrepreneurs for the new funds available since their investments appear more profitable?

Yes, but that would actually seem to fit what I’m saying. If the following were true… … then that would mean the capital for the new hot dog stands was bid away from away from lower order entrepreneurs (say some other entrepreneur who would have liked to use metal components in the grill to make …

I understand the Austrian idea that fractional reserve banking(FRB) and artificially low interest rates(ALIR) create malinvestment which fuels the business cycle do you believe it to be true? or false?

types of malivestment

Economics Economics Questions

Lilburne January 7, 2010, 4:22pm 8

Thanks nir. Have you seen my thread Feedback request for Economics Piece? You being a student of ABCT, I’d particularly appreciate your feedback.

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types of malivestment

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