The Austrian Theory of the Business Cycle | Jonathan Newman

[@briangilton782]

Incredibly succinct. Thank you!

[@AustrianDuration]

The definition of recession was never, ever "2 Quarters of Declining RGDP." RGDP only measures final output, there's more economic activity than final goods.

[@coonhound_pharoah]

In my view the time preference theory of interest is not sufficient to explain what we see in reality. It is not only the time which matters to the rate of interest; risk is the ultimate determinant of the rate of interest. Time is one dimension of risk, but there are many other dimensions of risk. Sometimes new credit finances projects which make the period of production longer, but other times it finances projects which do not lengthen the period of production but do make the period of production more risky. It is often the most risky projects which disappear first when interest rates rise, and this is because they are the projects with the lowest calculated ROI. Perhaps some day I will get around to finishing my book. A perfect example of this is the entire cryptocurrency industry, which would not exist absent credit expansion by the Fed. Almost immediately as rates rose, crypto companies started showing their cracks and frauds. Crypto produces almost no value to anyone except for its use as a means of gambling. I won't call crypto gambling "speculation" or "investment" because those terms imply there actually is use value to the products offered. The numbers of people it to which does provide use value are vanishingly small.

[@edwardx.winston5744]

I’m no economist, so forgive my naïveté, but your comment spurs two reflections I hope you’ll address: 1) My understanding is that it is a core principle of Austrian economics that money and the necessity for it precedes the government establishment of formal currencies to meet that need. It then follows that the architects of cryptocurrencies are simply trying to create alternative units of exchange that won’t be subjected to the whims of politicians who would manipulate supply of a formal currency in whatever manner might earn them the most votes during an election cycle (i.e., following the incentives of extremely high time preference). 2) At least in theory, a cryptocurrency therefore provides two components of “value” to those who use them: the basic advantage that a common means of exchanging goods and services that any form of money/currency affords over barter, and a unit of exchange outside the reach of government meddling. For the record, I own no cryptocurrency whatsoever and am leery about its security (fearing criminal hackers and federal tyranny alike). But from an Austrian economics perspective, isn’t cryptocurrency an enticing contemplation?

[@JamesAndrewMacGlashanTaylor]

Can the EXISTENCE of interest itself be explained by these other sources of risk alone? Not mere factors of the rate of interest, but the very grounds of its existence in the first place?

[@andysondur]

According to Mises "The final state of the market rate of interest is the same for all loans of the same character. Differences in the rate of interest are caused either by differences in the soundness and trustworthiness of the debtor or by differences in the terms of the contract."

[@andysondur]

I think the element of project profitability is better fleshed out in the lectures on Entrepreneurship. It suffices here in Production Theory, to limit interest rate along the time dimension to better stress on the time preference as a major factor.

[@coonhound_pharoah]

@@edwardx.winston5744 In my view those are mostly marketing statements and not really true in reality. I am highly aware this is all based on my subjective evaluations of the industry and the people in it, but that is my humble opinion of it. From an economics perspective, it probably is an interesting experiment. But as it currently exists in the real world, it is full of scammers and resembles an informal multi-level marketing scam.