Technically, a Business Cycle Is Generated by Movements of Interest Rates Which Affect Relative Prices in Such a Way as to Cause False Expectation, According to Lionel Robbins

Robbins discussed the basic cause of business cycles. Technically “a business cycle is generated by movements of interest rates which affect relative prices in such a way as to cause false expectation.” In his explanation, he made a distinction between consumers' goods and producers' goods. Interest rates are pushed lower.

This means that the profitability of all forms of production which involve making things which only yield services at a later date, or over a long period of time, in increased. . . . The longer-lived the capital instrument, or the greater its distance from consumption, the more its value is affected by the change in the rate of interest. The shorter-lived it is, or the less its distance from consumption, the less it is affected. The value of flour in the baker's shop is hardly affected by a cheapening of the cost of borrowing. The value of mines, forest, houses and heavy factory equipment is enormously affected.

Robbins' plan for recovery included the reestablishment of an international gold standard, stable exchange rates, removal of trade barriers, and greater flexibility in prices and wage rates. He opposed the interventionist policies of maintaining wages and consumer demand, propping up business bankruptcies, and limiting farm output.

--Mark Skousen, The Structure of Production, new rev. ed. (New York: New York University Press, 2015), Kobo e-book.