with 7 comments
1. Sunspot Business Cycle Theory
2. The Kondratiev Wave (Rothbard’s refutation)
3. Animal Spirits/Irrational Exuberance/Overoptimism-overpessimism (Rothbard’s counter, Garrison Powerpoints)
4. Overproduction (See Rothbard’s and Mises’ counters)
5. Underconsumption (Rothbard’s refutation)
6. Acceleration Principle (Rothbard’s refutation)
The Kondratiev Wave
Meanwhile, Paul Krugman and Brad DeLong can’t correctly identify the theorist behind the Austrian Business Cycle Theory.
Written by 20000miles
March 19, 2009 at 3:13 am
Posted in economics
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The most insightful analysis of business cycles, in my view, was provided by Henry George in his book Progress and Poverty (1879). George’s analysis has been periodically confirmed (but, unfortunately, largely ignored). Most recently, authors Fred Harrison (in “Boom Bust: House Prices, Banking and the Depression of 2010” published in 2005) and Phil Anderson (“The Secret Life of Real Estate” published in 2008).
Edward J. Dodson
March 19, 2009 at 12:56 pm
I don’t know about that. There are booms that are not centred on land speculation. And the obvious question is: from where do the speculators get the money to bid up land prices?
There are a few good things to say about Georgism and LVT. Even Rothbard admitted it would bring sub-marginal land into use. And Friedman referred to it as “the only good tax”.
March 19, 2009 at 4:46 pm
Our land markets are inherently speculative and dysfunctional. Contrary to the assertions of neoclassical economic theory of markets, price does not clear the market for land. For some reason neither Rothbard nor Friedman seemed to understand this to be the case, which is why their theories of business cycles were flawed. That said, your point regarding money is certainly accurate. Bank-provided credit acts as an accelerant thrown on an already-flaming fire. About that, I know a thing or two from 35 years of experience in banking. I tried to warn the top executives at my institution that a crash was coming but they were unwilling to risk market share by pulling back from lending on land values as they peaked.
May 6, 2009 at 6:46 am
This would make a pretty good full article, you know… I bet Mises.org would like it!
March 19, 2009 at 5:47 pm
In my view, neither Rothard nor Friedman were examining the pivotal role of land markets within business cycles. And, business cycles are driven to a large extent by property market dynamics, land specuation being an integral component of property markets.
Henry George’s analysis was referred to me during the early 1970s when I worked as a market analyst for a large regional bank. My prior education in economics as an undergraduate virtually ignored land markets or land as a distinct factor of production. I later moved on to Fannie Mae where, for 10 years, I managed a group of review underwriters. What I noticed was that as accelerating land prices outpaced increases in household incomes, only by increasing maximum loan limits reducing down payment requirements and adopting more flexibile credit criteria could loan volumes be sustained — even when interest rates had returned to levels in the 6-7% range. Every effort to expand the “window of affordability” on the demand side resulted in market forces capitalizing the benefit into higher and higher land prices.
I concur with your allusion to bank credit as the accelerant poured on the speculative property market fires. I have been doing all I can to put the idea to key officials that any banks whose depositors are protected by government insurance should be prohibited from providing credit for the purchase or refinance of land assets. This one measure would greatly reduce the risk taken on by consistently imprudent bankers and help to stability land prices at a level sufficiently low to stimulate both business investment and residential home purchases. Purchasers would be required to accumulate savings, but the amount required to make cash down payments would be much lower than has been the case.
March 19, 2009 at 6:00 pm
A note on a piece of writing worthy of reading even now is a mid-1970s paper by economics professor Arthur P. Becker, “Full Employment Without Inflation” — a very effective analysis of what passed for supply-side economic proposals being advanced at the time by Arthur Laffer and others.
This paper is available online in the School of Cooperative Individualism library.
March 19, 2009 at 7:42 pm
Kondratief’s work was interpreted by the Soviets as an endorsement of capitalism because the economy would recover.
He went to the gulag.
March 29, 2009 at 1:25 pm
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