Just a very quick note so as to weigh in on a debate which, frankly, I don’t really want to weigh in on. It relates to the Austrian Business Cycle Theory (hereafter: ABCT) and its relationship to the natural rate of interest. The natural rate of interest was discredited by Piero Sraffa in the 1920s when he pointed out that there were actually multiple own rates of interest depending on which commodity you took as a numeraire. There have been many Austrian responses to try and iron this out — almost all of them imagine a range of financial market contracts, throw in some implicit “rational expectations” assumptions about how such contracts are priced and then claim that they can reconstruct the ABCT from here.
I don’t think that this is the case, I think that the assumptions they use to make the financial contracts produce the interest rate they wish to produce — because, let us have no doubt, this is a theory that at some base emotional level the Austrians want to be true — contradict other assumptions made elsewhere in Austrian theory; such as the assumption of Knightian uncertainty.
However, even leaving this aside we know that the ABCT will not work because, whatever way you cut it, it rests on the idea of a rate of interest that will bring the economy to full employment equilibrium. The manner in which the theory “works” is that the money rate of interest — i.e. that charged by banks — either falls above or below this full employment equilibrium rate, thus causing either inflationary or deflationary forces to generate. This view, however, is disproved by the Cambridge Capital Controversies which showed that such a rate of interest — which the Austrians take over from Knut Wicksell — cannot exist.
Here I will quote Peter Kriesler summarising the argument made by Colin Rogers in his extensive book on monetary theory, Money, Interest and Capital:
Wicksellian monetary theory relies crucially on the concept of the natural rate of interest which has logical flaws which are now recognized as having been exposed by the Cambridge capital controversies. The natural rate of interest was derived from the interaction of forces within the real sector, and determined the equilibrium monetary rate of interest. The natural rate of interest is derived from Wicksell’s capital theory on the assumption that all forms of capital must earn a uniform rate of return. The natural rate is the price which determines the equilibrium of savings and investment. By applying the results of the Cambridge critique of neoclassical capital theory to Wicksell’s concept of the natural rate of interest, Rogers is able to show that it has no rigorous theoretical foundation. Since, for Wicksell, it is the natural rate which determines the market (or monetary) rate of interest, this leaves Wicksell’s monetary theory also without foundation. (Pp52)
It also leaves the ABCT without foundation as this theory relies on the notion of an interest rate — call it the “natural rate” or the “equilibrium rate” or whatever else you want — that, as Kriesler says, “determines the equilibrium of savings and investment”. But this notion does not stand up to the results of the Cambridge Capital Controversies.
And just to wrap this all up I will quote Austrian economist Robert Garrison on the origins of the ABCT and how it relies crucially on Wicksell’s ideas on monetary theory that I have laid out above:
Grounded in the economic theory set out in Carl Menger’s Principles of Economics and built on the vision of a capital-using production process developed in Eugen von Böhm-Bawerk’s Capital and Interest, the Austrian theory of the business cycle remains sufficiently distinct to justify its national identification. But even in its earliest rendition in Mises’s Theory of Money and Credit and in subsequent exposition and extension in F. A. Hayek’s Prices and Production, the theory incorporated important elements from Swedish and British economics. Knut Wicksell’s Interest and Prices, which showed how prices respond to a discrepancy between the bank rate and the real rate of interest, provided the basis for the Austrian account of the misallocation of Financial capital during the boom. The market process that eventually reveals the intertemporal misallocation and turns boom into bust resembles an analogous process described by the British Currency School, in which international misallocations induced by credit expansion are subsequently eliminated by changes in the terms of trade and hence in specie flow. (My emphasis)
Put a fork in it. The ABCT has been a dead duck for years. Which leads one to wonder why Hayek received the faux-Nobel for it — which he received, ironically enough, joined with Gunnar Myrdal, Wicksell’s student who overturned the Wicksellian monetary theory!

Excellent take on the ABCT Philip!Yes as a Swede and familiar with the Swedish tradition that use to be called Stockholm School,and what turned out be as identical to Keynsianism that you could not really differ it as separate school in the end.You probarly know, Bertil Ohlin a friend to Keynes, coined the term Stockholm School in his , “Some Notes on the Stockholm Theory of Savings and Investment” Economic Journal in 1937.What he basicly wanted to show was that, a Keynsian revolution have been taken place in Sweden at the same time and independently as J.M Keynes formed his ideas in Cambridge.But what is interesting to me is when i see the Austrians so slavishly and very narrow and uncritical interpret the Wicksellian Natural Rate concept. It is so different from how Wicksell´s own adepts treated old Knut´s work.There was from the start a much more open debate and even open rejection and disputes about if there was much use or even existence of some sort of “Natural Rate”.They revolted against their mentor Wicksell in an open and lively but friendly way in discussions,there Wicksell himself was apart to his death 1926.There is almost an anthesis to what seem to be the way in Austria with such as Hayek and Mises,when they dealed with old Wicksell.
For exampel Erik Lundberg
in his 1937 “Studies in the theory of economic expansion” and Erik Lindahl in 1939: Studies in the “Theory of Money and Capital” dealed with buisness cycles with in
a fare more open and variated form and they were Wicksell´s own students.
But what i could see ,is that Austrians treat Wicksell in a regressive way,fare apart from what Wicksell did with his own theories.Wicksell i guess was never a true “Wickselian” he was very selfcritical,and he himself,seem to struggle with if the Natural Rate was even a useful thought-model,to elaborate with.But Austrian´s in my view is some sort of “Bastard-Wicksellian´s”!I can´t see much of Wicksell in their attempt to use his work!Have a great week Philip!
By the way i just read this one about the Cambridge Capital Controversy
CAPITAL CONTROVERSY, POSTKEYNESIAN ECONOMICS AND
THE HISTORY OF ECONOMIC
THOUGHT
Essays in Honour of Geoff Harcourt Volume One
Edited by
Philip Arestis, Gabriel Palma
and Malcolm Sawyer
Click to access arestis972.pdf
100%! I read Gunnar Myrdal’s abridged English works at the same time as I read Keynes. They are the same ideas. I also read Wicksell in the original and he is pretty flexible and a good economist. It is the Austrians that tore him out of context and ruined his legacy.
The Stockholm School was very important and needs more recognition among Post-Keynesians. In fact, in the next week I’m going to do a few posts on Myrdal’s writings and maybe LK will oblige by responding. It’s a discussion worth having.
What you think about the ABCT is wrong because of your poor understanding of the austrian theory. The CCC is irrelevant to that. What the ABCT is all about is the distorsion of relative prices, through signals in “expected” profits. Go here, if you want to understand why.
Yes, I am aware that the ABCT can be made to say basically anything. That makes it a sloppy and poorly articulated theory.
No, you are aware of nothing at all. I didn’t comment much earlier, pointing to my article instead and hoping you’ll say something. Apparently I have over-estimated you.
But enough with that. You misinterpret the ABCT by saying the interest rate must decline. It’s not always true and Rothbard as well as H de Soto both argue it’s possible within ABCT prediction that the interest would rise during the boom (see my article). What is relevant is the interest rate(s) that happen to be below the equilibrium, and this condition may happen independently of changes in interest rates over time.
The core of ABCT is about time preference, and you should focuse more about that, rather than on interest rates per se.
Equally important, is the comment made by Hayek below, in his The Pure Theory of Capital :
And here’s another devastating paragraph, from Hayek’s Profits, Interest, and Investment :
I hope you can do better than the poor article of yours here. If the only comment you’re capable to make is “the ABCT can be made to say basically anything” I can tell you I’m not impressed.
If you want, you can invite your best friend (what’s the name already, ah, Lord Keynes ?) to come here. And try to distort the ABCT once again as he has always did and he will always do. Guys like him or you surely never read Hayek’s work. At least, not seriously. To show you the interest rate is not what should be focused on, see what Mises said in Human Action :
The creation of credit “out of nothing” is what matters. Thus you don’t need to think about the “natural” interest rate(s) or whatever is like. Just thinking about how credit over-supply can distort relative prices and cause entrepreneurs to misinterpret the price signals. I have reviewed virtually all studies on the empirics of ABCT and I can tell the theory should be taken very seriously. And not like the mess you’re making out of it.
There are more comments from the austrians on the CCC. You have also Huerta de Soto’s argument which says that re-using a method known as less capital-intensive as a part of the new, more capital-intensive production structure is in fact a proof that such effect of reswitching is (or may be) the product of lengthening in production structure through more investments in more capital-intensive structures. In that case, he says, you can’t say the re-use of these less capital-intensive methods should be seen as less capital intensive because they are incorported in the new, more capital-intensive structure. For more details, see my post, again.
On a final remark, there are non-austrian guys who ridiculize themselves by strawman-ing the ABCT and as a result get the boomerang right back to them, such as this clown of Noah Smith. But you also have more serious guys like Daniel Kuehn who knows more (and probably have read more) about what they are talking about. I hope you’re more in the second category than the first.
Unfortunately for you the money supply is not strongly related to the price index:
Queue: some evasion that says that the CPI is not the correct measure; that individual prices matter; or that Misean ‘praxeology’ states that empirics don’t matter.
By the way, a note on style. Your zealous tone makes you sound like a self-important cultist. Tone it down.
I doubt you have read this comment within only 3-4 minutes. Also, after looking at your post, I’m convinced you do not understand what ABCT is all about. And that you also misread my comment. I talked about “relative” prices. You clearly don’t know what it is. Ask austrian scholars and they will tell you (without any doubt) that the ABCT does not predict the prices will be on an increasing trend during the boom. The money supply increase sharply during the 1920s without changes in “overall” prices (and perhaps even a slight drop) but all austrian scholars I have read are well aware of that. I am also very disappointed by you ignoring my link about the empirics of ABCT. The theory is well supported.
Talking about zealous tone, you’re the one here to say the ABCT is dinosaur economics. Thus, that comment of yours is surprising.
Relative prices? Relative to what?
I thought it was obvious. Some prices go up faster than others. Or some prices go up (especially asset prices) but consumer goods do not. Normally, austrian theory predicts the prices of capital goods among industries of early stages (such as mining, manufacturing, etc.) to rise relative to prices among industries in the late stages (such as retailing, wholesaling, etc.). The late stage industries are those said to be closer to the final consumption good. But the ABCT also predicts that at a late stage, the consumer goods will begin to rise as well. That’s because the rise in prices among industries producing capital goods will result in higher wages for workers in these industries and they will end at some point to use the new money to but consumer goods. Of course, it depends on how the authorities react. If they attempt to end the boom through a rise in interest rates before the consumer goods prices go up, I do not expect them to rise, and this will not contradict the ABCT.
“Normally, austrian theory predicts the prices of capital goods among industries of early stages…”
No evidence of this:
http://bit.ly/1rmnYG0
A linear regression yields a flat trendline and a shockingly low R-squared of 0.000006.
I have literally never seen a theory more completely falsified.
I have linked to the empirical studies of the ABCT. These econometricians agreed we should take the ABCT very seriously. You ignored it once, and you continue to ignore it again.
Although you show me graph with M3 against producer prices, I was already aware that most studies do not support such a relationship. My link summarized these studies. But they show that most investments are made in producer goods but except from the Wainhouse study, they have not necessarily have larger growth than consumer goods. The ABCT is not necessarily falsified because you have to factor out the external influences over time. When more investment are made in these industries, as the empirics show, you should expect a subsequent change in relative prices of the same direction and magnitude. I don’t see it, and you don’t see it either.
If you click on my link, look for Anker’s table 4.3. It appeared that relative price is not meaninful predictor but “spread” and “dep” variables are meaningful. The spread was defined as the difference between long and short-term rates (the first is a proxy for the natural rates and the second is the market rates). The ABCT predicted the larger the spread the larger the consequences. Such prediction was borne out. DEP variable was the ratio of consumption/investment expenditure. And it, too, supports the ABCT. So, although these econometricians agreed the PPI/CPI ratio do not follow the ABCT prediction, the mechanisms were fully consistent with the ABCT, and they rightly conclude the data supports the theory. Why then, the PPI/CPI ratio do not follow the expectation of ABCT ? Perhaps because of external confounding factors that may hidden the PPI/CPI ratio to change accordingly to the theory. However, I can easily think of how austrian scholars can counter your argument; they would merely say that the PPI/CPI ratio would be lower than what has been observed in the data, regardless of its trend over time, if there was no money over-expansion.
“But they show that most investments are made in producer goods but except from the Wainhouse study, the capital good prices did not necessarily have larger growth than consumer goods prices.”
My sentence seems terrible, but I corrected it anyway.
Evasive garbage. I’m done with this. Thanks for the chat.
The theory either says nothing that we don’t already know or it makes incorrect predictions that have to supplemented by ceteris paribus conditions.
If you want to get my attention come up with a firm prediction and I’ll check it against the data. Otherwise you’re just talking waffle.
I show you the data, in fact, support the theory and what you say is “evasive garbage” without even bothering to look at the article ? It’s not serious, you know that. Also, if you’re right about the idea that mainstream economists say the same things as the austrians, I told you before to cite these scholars. I can cite you austrian scholars if you ask me to do so. And I would expect you to do the same to support your claim. Because I will not accept it without proof.
I did cite: Minsky. And he’s not mainstream. He’s a Keynesian. Tobin’s Q open up the possibility for something similar. The list goes on.
If you want to continue make a firm prediction based on the ABCT that cannot be made without it. Otherwise you’re not serious.
Specifically, I asked you to cite the “sentences” and “parapraphs” where your economists said stuff like “time preference” and “relative price”. You did not do that.
Concerning the ABCT prediction, I don’t know what to say anymore. I show the links, I told you about the empirical studies but all you have to offer is a hand-waving argument. I will not persist. I know from my stats you have not clicked on the link, because the number of views for that article I linked to is zero, today.
There are other great studies I can recommend such as :
Carilli, & Dempster (2008). Is Austrian Business Cycle Theory Still Relevant?
Young, Andrew T., (2012). The time structure of production in the US, 2002-2009.
But I’m afraid you’ll not change your mind even if I prove you wrong.
I’m not asking for studies. It’s easy to fit a model to data. Any jackass with Eviews can do that.
I’m asking YOU to make a firm prediction that I cannot make without ABCT. It’s a very simple thing to ask. If you can do this and the results are good I will embrace ABCT. If not, I will not.
Very simple.
“I’m not asking for studies”
You’re interested in empirics and yet not interested in empirical studies. Something must be wrong with you.
For “my” prediction (which will not be specifically mine, but more broadly, the prediction that every austrians will make) it’s like what I said before. You can’t have a business cycle without monetary over-expansion. If you can, the ABCT is falsified. I don’t have any examples of booms without monetary over-expansion.
Studies in economics often come to opposite conclusions. If you don’t know that you’re not very experienced.
Now, you’re beginning to make a prediction. Define ‘boom’ and define ‘monetary overexpansion’ very precisely. Thank you.
“Studies in economics often come to opposite conclusions. If you don’t know that you’re not very experienced.”
Funny, because this is exactly my opinion about you. I suppose I should ask you to cite some evidence of boom without monetary over-expansion. But you would have asked me to define these terms first.
By monetary (or credit) over-expansion, I meant a growth in credit supply that exceeds people’s willing to save, by defering/delaying consumption.
By boom, it’s more complicated. But if you are thinking about what are the characteristics of a boom, here’s Huerta de Soto (1998 [2008]), page 352, footnote 68 :
You must more clearly define boom so that I can test your hypothesis. I need something I can see in the data. Might it be fair to say that a boom is always followed by a bust? So, a boom is the period of growth prior to a recession?
Yes. According to the ABCT, a boom is the symptom of credit over-expansion. Because it generates mal-investment, the bust is the final, necessary outcome to be expected.
Now, you are aware that the money supply is FAR larger than the total savings of the economy, right? So, I’m assuming that we are talking about growth rates here. Correct?
So, let’s be crystal clear.
The ABCT says that when the money supply grows at a faster pace than the growth rate in private savings a boom will take place that will then be followed by a recession.
Is this a fair characterisation? If not could you give me a suitably modified version.
The above statement should be re-written as follows :
However, if you’re going to make a blog article on that, I would not recommend you to cite me. I’m not an austrian scholar. I happened to espouse the ABCT because i’m fairly convinced by its strength. So, you should better read and cite scholars like Carilli & Dempster (2008) or Bismans & Mougeot (2009) or Mulligan (2006) or Keeler (2001).
With regard to the private saving growth rates, I don’t think it was the kind of variables the econometricians have used to proxy the divergence between people’s willing to save and the credit supply changes. For example, Carilli & Dempster (2008) use the savings/consumption ratio as proxying the natural interest rates. But others, such as, Keeler (2001) used the “spread” in interest rates (divergence between market and natural interest rates). Carilli & Dempster prefer their own variables. Perhaps the best thing is to use both, if possible. But if you want to know, the savings/consumption ratio is the variable proposed by Rothbard as to be the appropriate “time-preference-based” determinant.
Here’s for example Keeler’s exposition of the ABCT :
And here’s Carilli & Dempster reply to Keeler’s use of the spread (or interest rate gap) :
The same authors defend their use of savings/consumption ratio as follows :
So, as i said, the ideal is to examine both variables and see if you get something different. But the most ideal seems to be the consumption/saving ratio. Also, these authors wrote about ABCT prediction, the following :
P.S.:
Unrelated to this, but now that I look at your graph again, I think what you did is wrong. The ABCT posited that (net of external influences) the ratio PPI/CPI should increase at the beginning of the boom. But you looked at the trend of PPI, not the trend of PPI/CPI ratio. That being said, it’s not a relevant variable anymore. Most studies show that this variables do not follow the prediction but that the pattern of expenditure and the interest rate gap are both consistent with the ABCT.
I do not know what data you’ll use, but you should remember that a lot of econometricians have already tested the ABCT within the USA. I’m not sure whether you’ll be able to dig up some new data that they haven’t examined already. For example, your graph was from the FRED, a data that has been used by Carilli & Dempster (2008) and they conclude in favor the austrians. Thus, you should really verify the data and what has been done before. However, outside the USA, there are less empirical studies (except the ones done by Bismans & Mougeot) especially in less developed countries (I know of one studies one in South Africa if my memory is correct but I was not able to access the paper). At the very least, if you use different statistical methods than the others, that can be worth the try.
Here is a list of studies I recommend you to read, to know more about how others have attempted to test the ABCT.
Bismans, F., & Mougeot, C. (2009). Austrian business cycle theory: Empirical evidence. The Review of Austrian Economics, 22(3), 241-257.
Carilli, A. M., & Dempster, G. M. (2008). Is the Austrian business cycle theory still relevant?. The Review of Austrian Economics, 21(4), 271-281.
Keeler, J. P. (2001). Empirical evidence on the Austrian business cycle theory. The Review of Austrian Economics, 14(4), 331-351.
Luther, W. J., & Cohen, M. (2014). An Empirical Analysis of the Austrian Business Cycle Theory. Atlantic Economic Journal, 42(2), 153-169.
Mulligan, R. F. (2006). An empirical examination of Austrian business cycle theory. Quarterly Journal of Austrian Economics, 9(2), 69-93.
Sechrest, L. (2009). Evidence regarding the structure of production: An approach to Austrian business cycle theory. The Review of Austrian Economics.
Young, A. T. (2012). The time structure of production in the US, 2002–2009. The Review of Austrian Economics, 25(2), 77-92.
I have cited Sechrest because he uses the austrian “measure” of money supply. Just in case, if you want to use it, here’s what Sechrest says about it :
I think it’s all.
LOL! A “lower savings to consumption ratio”!? You do realise that household income can only go to two places: savings and consumption, right? So, a “lower savings to consumption ratio” simply means “lower savings”.
Anyway, the data doesn’t show it. High money supply growth is often accompanied by higher savings.
I find it rather amusing that you are convinced of the validity of theory when you have clearly not bothered looking at the statistics. You should think about that for a moment. As yourself WHY you think that this theory is correct despite the fact that you have not examined the evidence. I think you are taking the argument on authority.
About time preference, to be sure, the key thing is that entrepeneurs act as if there are more savings than what is actually available, and make investments on a greater scale than what they would have done otherwise. That will cause mal-investment because the increase in credit supply is unlikely to be matched by changes of preference in the same direction, i.e., willing to save by delaying consumption, especially when the decline in interest rate comes so quickly, just within a few years. ABCT does not of course predict “what” will be booming in the process, but just that money is the leading condition of every booms. Without money, even the “animal spirit” theories so dear to J.M. Keynes does not work. Very soon, the bank credit will become costlier, and this will prevent the boom to emerge. See what Fritz Machlup had to say on this matter :
Keynesianism, not austrianism, is the dinosaur.
And why do you assume that the credit markets would price in risk properly if the central bank stepped back? There are many historical examples where this did not occur. Speculative bubbles did not start when central banks came into being. They have been around far longer than that. Do you have an explanation that works within the ABCT to accommodate these phenomena?
You say : “Speculative bubbles did not start when central banks came into being”
But I’m afraid you continue to mischaracterize the ABCT. Try to cite any austrian scholars saying stuff like that. I can tell you that you will fail terribly. I’m not aware of them saying things like that. There were bubbles (probably not as serious as the ones we have today) not because of central banks but because of bank regulation. Central bank is an emanation of bank regulation.
The so-called “free bankers” such as L. White and G. Selgin, for the most renowned, tell us that, at about early times, you have so many times some examples of banks with privileges. If they do not always have the monopoly of issue, there were regulation against private banks (through taxes out of banknote issuing, and so on). Sometimes, the “Central banks” at that time have not been considered officially as central banks and yet they act closely as if they were central banks. I will try to search for these passages again, but I remember clearly from which they come from: “The Experience of Free Banking” (edited by Kevin Dowd; 1992).
So what is required to prevent bubbles then according to Austrian theory? Government regulation?
This should be read -> “If they do not always have the monopoly of issue, there were at least regulation against private banks that tend to reduce their competitiveness (through taxes out of banknote issuing, and so on) compared to the privileged banks”
Also, can you cite specifically what were the bubbles you are referring to ? That will help me to answer it.
You’re faster than lightning !
So, for your question, it depends. Most austrians say that it’s only with 100% reserve banking that you can avoid crises. But there are other austrians (such as White and Selgin, and Horwitz etc.) who believe in the theory of Free Banking. See Selgin’s book here. Of course, I’m not asking to read all of it. But I believe the chapter 5 is the best one to introduce yourself with Selgin’s idea of “money holding” by the public. The chapters 3 and 4 are also important, after you read 5th. It’s not a huge book, hopefully.
You have also the empirics of the experiences of Free Banking. Here. It works pretty well, as far as I can see. The only element of doubt was from Sweden, and the episode of banking was a success (people had confidence in the banking system and there were no wide-scale banking crises) but some scholars believed it was due to Sweden having central banks, and others said that the Bank of Sweden (Riksbank) did not act as lender of last resort, etc.
Furthermore, I don’t think austrians say that regulation automatically lead to bank crises; it depends what kind of regulation. For example, consider Selgin’s argument here, from The Theory of Free Banking: Money Supply under Competitive Note Issue :
ABCT does not appear to be saying anything that is not already known by other economists.
Low interest rates cause asset speculation. Duh.
As to the solutions, they’re Utopian and would probably not work anyway.
And why is it utopian ? I thought i told you the episodes of Free Banking point out that the free banks perform relatively well. Of course, governments do not want free banking because they have nothing to gain, and that is, after all, among the first reason why free banking have been banned in the past. They wanted seigneuriage and profits; they could have expanded their public spending more easily this way.
You say -> “ABCT does not appear to be saying anything that is not already known by other economists.”
Considering this, I should disagree. I hear more often than not that crises result from “random events” or “over-optimism”. Or worse, they say they might be the result of a mere emergence of new technologies and innovations. Some even believed that inequality can cause the business cycles. I have never heard the mainstream saying things like “time preference” or “relative prices”. Unless you cite them, that is.
Austrians are the only ones who focuse on credit over-expansion and distortion of production structure (towards lengthening, if money supply keeps increasing).
No they’re not. Read Minsky. Although he is a bit more subtle on the question of causality than the ABCT which seems vulgar in its ideas as to causality.
I’m really disappointed, more than you think. I wanted to give up. I don’t even understand why you call yourself researcher. All this talk for nothing. What’s the purpose for all these questions of yours if it was just for you to say “No you’re wrong the facts don’t tell this” ? The least you should do is to collect the data, perform time series regression, test for unit root (ADF and PP), and then transform by detrending or differencing, and then use multiple regression, with your stationary variables, eventually with ECM if cointegrated. All this with the appropriate variables/proxies of natural interest gap, RGDP/NRGDP, ratio investment/consumption expenditure, job (re)allocation, etc. This is how I expected you to test “my” hypothesis, as you said you’ll do. Your answer is not what a scientist should be given.
When you ask proof, I give references and links. You ignore them. When it’s me who is asking, I get nothing in return, except a handwaving argument. And I’m still waiting for you to quote a passage of Minsky, because this guy never said anything about time preference and interest rate gap, but instead the Minsky’s thesis was about high risk-taking in banking behavior; so either you’re lying or you’re grossly misinformed about Minsky. You can read “Austrian persistence? Capital-based business cycle theory and the dynamics of investment spending” from Montgomery (2006) and you’ll see the particularity of the austrian theory, and how it differs drastically from others.
Because you’re helpless, it’s probably my last comment. Here’s the list of evidence.
Concerning the savings you’re talking about, I suspect the link here answers your question, and as you can see, the data shows you’re wrong. There is no increase in savings. So either you’re uninformed (an irony for a researcher) or you were lying. Or is it just my vision ?
Now, here some others. Callahan & Garrison (2003) in proving the ABCT in the face of the dot-com, have (among other things) cited Brenner (2002) :
Callahan, G. & Garrison, R. W. (2003). Does Austrian Business Cycle Theory Help Explain the Dot-Com Boom and Bust?. The Quarterly Journal of Austrian Economics, 6 (2), 67-98.
Other studies (Carilli & Dempster, 2008) use econometrics to show that the ratio of savings/consumption Granger-cause changes in output, specifically, an expansion following by a recession. Here a list of other studies using the same approximation of interest rate gap (ratio saving/consumption) and came to conclusion similar to Carilli & Dempster.
Selleby, K., & Helmersson, T. (2009). Empirical Testing of the Austrian Business Cycle Theory: Modelling of the Short-run Intertemporal Resource Allocation.
Russell, L. A., & Langemeier, M. R. (2014). Austrian Business Cycle Theory: Evidence from Kansas Agriculture. Paper presented at the Texas Tech University Free Market Institute Friday.
And here, 2 data analyses on, respectively, Iceland and New Zealand. The data show you that consumption increases during expansion, and of course, savings decline.
Davidson, R. R., (2013). Austrian Business Cycle Theory: An Application to New Zealand’s Recent Boom and Bust. Dissertation.
Ragnarsson, R. H. (2012). Austrian Business Cycle Theory: Did Iceland go through an Austrian Business Cycle?.
Mulligan (2005) conducted ECM analysis, the results displayed in table 4. You have a positive and significant coefficient for consumption index, meaning that credit expansion permanently increases real consumption expenditures. That is consistent with a pattern of decline in savings. Again, you lose and I win.
Mulligan, R. F. (2005). The Austrian Business Cycle: A Vector Error-Correction Model with Commercial and Industrial Loans. Journal of Private Enterprise, 22(1), 51-91.
Still related to this topic, Wainhouse (1984) use Granger causality test, and several assumptions are evaluated, the first of them was that changes in supply of savings will be independent of changes in supply of bank credit. He was able to prove it’s indeed the case. If the ABCT is wrong, then, savings would have caused credit. More recently, Richard Whittle (2012) shows that it is M0 but not savings that is responsible for GDP changes. Again, it’s well within the prediction of the austrian theory.
Whittle, R. (2012). Austrian Business Cycles: From Theory to Empirics.
Sechrest (2004) shows that, compared to money supply growth, savings predict less well commercial and industrial loans, industrial production and business equipment production (r=0.70 vs r=0.95). Then the ABCT is true in that the savings is not sufficient alone to account for entrepreneurial behaviors.
I have written another article on the empirics of the ABCT. I reviewed all the new studies here. And I counted them : 32 empirical studies/analyses in total on the ABCT. An interesting analysis that I read recently is that one here, for the US :
Neira, M. A. A., Bagus, P., & Ania, A. R. (2013). An Empirical Illustration of the Austrian Business Cycle Theory: The case of the United States, 1988-2010. Investigación Económica, 72(285).
You can see that the structure of production, approximated by the ratio of production in diverse sectors of the economy, moves in a manner coherent with the theory. If you reject the empirics, then so be it. That’s not my problem. But you can’t argue against that if you’re honest with yourself.
TL;DR. If you want to engage do so in a paragraph or two. If you want to write an essay post on your own blog and attract your own readers. Stop being tedious.
“TL;DR”
Wait a minute. You’re the one to ask proof that savings move (during expansion) in a manner consistent with the ABCT. I show you the proof here. If you disagree, let’s talk about it, and explain yourself, clearly. If you refuse to engage in the argumentation, I don’t know what I can do. I listed all the materials, and expect you to show me that empirics contradict the ABCT. Because that’s what you say. And that is wrong.
I am not reading tediously long posts. Nor am I reading five essays. Provide one essay or, even better, one set of data and I will look at it.
“Provide … one set of data and I will look at it.”
But you already have it !
See here :
Click to access Guidolin.pdf
Alternatively, see Mulligan’s study (2005) at table 4, the coefficient in consumption index is positive, i.e., increases in response to credit expansion. Or Callahan & Garrison (2003) : “Between 1950 and 1992, the personal savings rate had never gone above 10.9 per cent and never fallen below 7.5 per cent … But, between 1992 and 2000, it plummeted from 8.7 per cent to -0.12 per cent”.
I also cited the studies by Davidson (2013) and Ragnarsson (2012) above. See the links below.
Click to access ASSC2013-DavidsonRoy.pdf
Click to access ABCT.pdf
Negative savings rates are consistent with many theories of the cycle.
None of this has anything to do with the original post.