Economics Dictionary of ArgumentsHome
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| Business cycle: The business cycle refers to the fluctuations in economic activity over time, including expansion, peak, contraction, and trough. It reflects changes in GDP, employment, and production, influenced by factors like investment, consumer demand, and government policies. These cycles are natural but vary in duration and intensity. See also Economy, Economic cycles, Economic boom, Depression._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Murray N. Rothbard on Business Cycle - Dictionary of Arguments
Rothbard III 999 Business cycle/Rothbard: Money supply: an increase in the supply of money does Iower the rate of interest when it enters the market as credit expansion, but only temporarily. In the long run (and this long run is not very "long"), the market re-establishes the free-market time-preference interest rate and eliminates the change. In the long run a change in the money stock affects only the value of the monetary unit. Business cycle/Rothbard: This process - by which the market reverts to its preferred interest rate and eliminates the distortion caused by credit expansion - is, moreover, the business cycle! >Credit expansion/Rothbard, >Interest rate/Rothbard, >Time preference/Rothbard, >Money supply/Rothbard. Note the hallmarks of this distortion-reversion process: 1) First, the money supply increases through credit expansion; then businesses are tempted to malinvest - overinvesting in higher-stage and durable production processes. 2) Next, the prices and incomes of original factors increase and consumption increases, and businesses realize that the higher-stage investments have been wasteful and unprofitable. The first stage is the chief landmark of the "boom"; the second stage - the discovery of the wasteful malinvestments - is the "crisis." Crisis: The depression is the next stage, during which malinvested businesses become bankrupt, and original factors must suddenly shift back to the Iower stages of production. The liquidation of unsound businesses, the "idle capacity" of the malinvested plant, and the "frictional" unemployment of original factors that must suddenly and en masse shift to Iower stages of production - these are the chief hallmarks of the depression stage. >Crises/Rothbard. Rothbard III 1004 Business cycles/Rothbard: Secondary effects: (…) the expanding money supply and rising prices are likely to Iower the demand for money. Many people begin to anticipate higher prices and will therefore dishoard. Prices: The Iowered demand for money raises prices further. Since the impetus to expansion comes first in expenditure on capital goods and later in consumption, this "secondary effect" of a Iower demand for money may take hold first in producers'-goods industries. Profit: This Iowers the price-and-profit differentials further and hence widens the distance that the rate of interest will fall below the free-market rate during the boom. Depression: The effect is to aggravate the need for readjustment during the depression. Producer’s goods: The adjustment would cause some fall in the prices of producers' goods anyway, since the essence of the adjustment is to raise price differentials. The extra distortion requires a steeper fall in the prices of producers' goods before recovery is completed. Inflation: (…) the demand for money generally rises at the beginning of an inflation. People are accustomed to thinking of the value of the monetary unit as inviolate and of prices as remaining at some "customary" level. Hence, when prices first begin to rise, most people believe this to be a purely temporary development, With prices soon due to recede. This belief mitigates the extent of the price rise for a time. Credit expansion: Eventually, however, people realize that credit expansion has continued and undoubtedly will continue, and their demand for money dwindles, becoming Iower than the original level. Crisis: After the crisis arrives and the depression begins, various secondary developments often occur. Deflation: In particular (…) the crisis is often marked not only by a halt to credit expansion, but by an actual deflation - a contraction in the supply of money. The deflation causes a further decline in prices. Any increase in the demand for money will speed up adjustment to the Iower prices. >Deflation/Rothbard._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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> Counter arguments against Rothbard
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