The Austrian Theory of the Business Cycle Emerges from a Simple Comparison of Savings-Induced Growth with a Credit-Induced Boom

The Austrian theory of the business cycle emerges straightforwardly from a simple comparison of savings-induced growth, which is sustainable, with a credit-induced boom, which is not. An increase in saving by individuals and a credit expansion orchestrated by the central bank set into motion market processes whose initial allocational effects on the economy's capital structure are similar. But the ultimate consequences of the two processes stand in stark contrast: Saving gets us genuine growth; credit expansion gets us boom and bust.


--Roger W. Garrison, "The Austrian Theory: A Summary," in The Austrian Theory of the Trade Cycle and Other Essays, ed. Richard M. Ebeling (Auburn, AL: Ludwig von Mises Institute, 1996), 112.