This video on the Austrian business cycle seems to state that when rates are low this signlas to investors that there is plenty of money to borrow and plenty of resourses to deploy. However I dont understand to 100% how resources and available cash are linked tho, whats the idea? Why must low rates mean plenty of resourses?
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2$\begingroup$ Questions here are found via text search. A video with almost no explanation is not a useful resource for later readers. It would be easier to get engagement if you offer more details as to what the actual question is. $\endgroup$– Brian RomanchukCommented Aug 16, 2020 at 12:41
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$\begingroup$ @Brian Romanchuk added some $\endgroup$– user123124Commented Aug 16, 2020 at 14:23
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$\begingroup$ Shameless plug relevant for your question which works through austrian capital theory: youtu.be/gy5S8xDxUdk $\endgroup$– EconJohn ♦Commented Aug 18, 2020 at 1:36
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2$\begingroup$ I am from Austria and the business cycle here works much like everywhere else. $\endgroup$– Michael GreineckerCommented Aug 18, 2020 at 7:27
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2 Answers
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As a disclaimer, I think the Austrian business cycle is incorrect. I will try to explain in a sympathetic fashion. Mises.org has a great deal of resources on Austrian economics, much of it free.
From a quick watch of the beginning of the video, the distinction is between a market rate of interest, and the “artificial” interest rate set by the central bank.
In the case of a market rate of interest, the belief is that prices for everything will set to some balanced arrangement: the demand for investment goods will balance the supply, and there will be a matching balance in lending activity (with the interest rate on loans being the price that clears the market). In classical economics, this balance would be described as an equilibrium. However, different Austrians disagree on how to describe this, but they generally reject using “equilibrium.” You would need to find another source to explain their terminology.
Getting to your question, Classical authors can explain why the balance in lending markets coincides with the balance in physical resource markets in equilibrium. Roughly speaking, if any market is unbalanced, this would unbalance other markets, so all of them have to end up in equilibrium. The Austrians somehow end up with the same conclusion, but different authors appear to explain it differently.
(The issue with “artificial” interest rates is that Austrians argue that central banks invariably set interest rates too low, and thus there is excessive investment - “mal-investment.”)
answered Aug 16, 2020 at 16:00
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$\begingroup$ Thanks for the answer, do you know of any good references of these different authors? when doing research a lot of the effort is finding a good reference.. $\endgroup$ Commented Aug 16, 2020 at 18:23
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2$\begingroup$ I’m a post-Keynesian, so I normally would not recommend Austrians... I think mises.org is a good starting place. For books, you either have old books that will be confusing (written during the Gold Standard era), or newer books that are typically written by market strategists. The problem with those books is that they do a lot of story-telling, and explain the theory quickly. Not a huge fan of Murray Rothbard, but his works might be one of the easier places for the getting a handle on the theory. $\endgroup$ Commented Aug 16, 2020 at 18:40
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$\begingroup$ give this guy 3 min, he lays out some logic behind it youtube.com/watch?v=9a-eUKjnDfM $\endgroup$ Commented Aug 18, 2020 at 18:49
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I too also think the austrian theory of the business cycle is incorrect but will offer a sympathetic answer. It really about understanding how the theory related to the structure of production and how lower interest rates incentives activities that are further behind in this structure and extends the time for this process to occur.
Its interpreted as a signal for entrepreneurs to invest their time in production that is further from the market than that which is closer.
