Sunday, November 4, 2018

Would the Austrian Business Cycle Disappear with Rational Expectations?

A related question is if better information of entrepreneurs about credit expansion and its effects could cushion its effects. Mises argues that entrepreneurs may in the future anticipate the effects of credit expansion and avoid using the easy credit. But would the Austrian business cycle disappear with rational expectations? For that to be the case, as Huerta de Soto argues all economic agents would have to agree that ABCT [the Austrian Business Cycle Theory] is the correct theory, and exactly know how much money is injected and where in the economy it is injected. They would have to have all the relevant information. And even if they had this information, the future would remain uncertain. Thus, economic agents would be tempted to participate in the boom trying to withdraw from the corresponding investment projects before the recession sets in. But they could not know how long the boom would last.

--Philipp Bagus, "Modern Business Cycle Theories in Light of the ABCT," in Theory of Money and Fiduciary Media: Essays in Celebration of the Centennial, ed. Jörg Guido Hülsmann (Auburn, AL: Ludwig von Mises Institute, 2012), 235.

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