What do you think?
Rate this book
The Austrian Theory of the Trade Cycle and Other Essays
Booms and busts are not endemic to the free market, argues the Austrian theory of the business cycle, but come about through manipulation of money and credit by central banks. In this monograph, Austrian giants explain and defend the theory against alternatives. Includes essays by Mises, Rothbard, Haberler, and Hayek. In his later years, Professor Haberler distributed many of these monographs to friends and associates. New edition with an introduction by Roger Garrison and an index.
125 pages, Paperback
First published January 1, 1978
47 people are currently reading
1538 people want to read
Ratings & Reviews
Friends & Following
Create a free account to discover what your friends think of this book!
Community Reviews
Displaying 1 - 23 of 23 reviews
April 3, 2021
Pretty basic for me, given my current knowledge of the subject, but a great introduction to the theory for new readers.
May 9, 2015
I read this book last year as a matter of general reading, and read it again this year again as a refresher on the fundamentals of the boom and bust business cycle as seen by the Austrian School, and it was definitely better the second time around. Perhaps the best feature of this fundamental work is that it presents different facets of the cycle in essays written by prominent Austrian theorists which goes a long way in adding perspective, and depth which anyone reading this will be able to appreciate.
As I read this book, I couldn't help but be reminded of the "epic rap battle" between Keynes and Hayek. The association of the principles in the book to the lyrics of the raps made them easier to cement:
1. https://www.youtube.com/watch?v=d0nER...
2. https://www.youtube.com/watch?v=GTQna...
As I read this book, I couldn't help but be reminded of the "epic rap battle" between Keynes and Hayek. The association of the principles in the book to the lyrics of the raps made them easier to cement:
1. https://www.youtube.com/watch?v=d0nER...
2. https://www.youtube.com/watch?v=GTQna...
November 7, 2014
Little more than a pamphlet with cursory notes on the Austrian School. Focused almost exclusively on the dangers of credit-induced booms, particularly those inducing short-term allocations to investment from consumption or vice versa. Essentially, the government can 'make' monetary policy and the economy 'lags' to fall back to equilibrium, requiring more and more pumping to have the same effect - like a drug. Keynesian economics views the primary actors as states, but with increased globalization the Austrian school is of more practical value due to its emphasis on more systems dynamics. I have a feeling that the Austrian approach would make more sense with network/percolation math, but it's just a feeling right now...
October 27, 2023
FOUR ESSAYS BY PROMINENT MEMBERS OF THE ‘AUSTRIAN’ SCHOOL
Roger W. Garrison wrote in his Introduction to this 1978 collection, “The four essays in this volume, each written by a major figure in the Austrian school of economics, set out and apply a distinctive theory of the business cycle. The span of years (1932-1970) over which they appeared saw a dramatic waxing and then waning of the prominence---both inside and outside the economics profession---of the Austrian theory… What happened over the span of nearly forty years to account for the rise and fall of this theory of boom and bust? The simple answer is… the Keynesian revolution…” (Pg. 7-8) He continues, “The offering of these four separate and distinct essays on the Austrian theory carries the message that there is no single canonical version of the theory… the theory allows for variations on a theme. The market works; it tailors production decisions to consumption preferences… as the economy becomes more capital intensive, the time elements takes on greater significance. The role of the interest rate in allocating resources over time becomes an increasingly critical one… if the interest rate is wrong, possibly because of central bank policies aimed at ‘growing the economy,’ then the market goes wrong.” (Pg. 13)
Ludwig von Mises states in his 1936 essay, “the banks… intervene on the market … as ‘suppliers’ of additional credit…produc[ing] a lowering of the rate of interest… The lowering of the interest rate stimulates economic activity. Projects which would not have been thought ‘profitable’ if the rate of interest had not been influenced by the manipulations of the banks, and which … would not have been undertaken, are nevertheless found ‘profitable’ and can be initiated… This upward movement could not… continue indefinitely… As soon as public opinion becomes aware that there is no reason to expect an end to the inflation… panic sets in…The value of the currency collapses… The crisis and the ensuing period of depression are the culmination of the period of unjustified investment brought about by the extension of credit… the artificial ‘boom’ had been brought on by the extension of credit and by lowering of the rate of interest consequent on the intervention of the banks.” (Pg. 28-32)
He continues, “Wages increase in periods of expansion. In periods of contraction they ought to fall, not only in money terms, but in real terms as well. By successfully preventing the lowering of wages during a period of depression, the policy of the trade unions makes unemployment a massive and persistent phenomenon. Moreover, this policy postpones the recovery indefinitely.” (Pg. 33)
Gottfried Haberler notes, “The traditional monetary theory… regards the upward and the downward swing of the business cycle as a replica of a simple government inflation or deflation.” (Pg. 44) He adds, “The principal defect of those theories is that they do not distinguish between a fall of prices which is DUE TO AN ACTUAL CONTRACTION of the circulating medium and a fall of process which is caused by a LOWERING OF COST as a consequence of inventions and technological improvements.” (Pg. 47)
He states, “[of the] inflation during and after the war… By means of such a monetary policy is it is always possible to drive any stock of gold, however large it may be, out of the country. The natural thing is then to substitute later a gold-exchange standard for the abandoned gold standard, which means… the erection of a credit structure on the existing stock of gold.” (Pg. 59-60)
Murray Rothbard asserts, “Fortunately, a correct theory of depression and of the business cycle DOES exist, even though it is universally neglected in present-day economics… these theorists saw that another crucial institution had developed in the mid-eighteenth century… This was the institution of banking, with its capacity to expand credit and the money supply… It was the operations of these commercial banks which… held the key to the mysterious recurrent cycles of expansion and contraction, of boom and bust, that had puzzled observers since the mid-eighteenth century.” (Pg. 74)
He explains, “the depression phase of the business cycle… comes out of… the preceding expansionary boom. It is the preceding inflation that makes the depression phase necessary… The depression is the unpleasant but necessary reaction to the distortions and excesses of the previous boom… Why, then, does the next cycle begin? Why do business cycles tend to be recurrent and continuous? Because when banks have pretty well recovered… they are then in a confident position to proceed to their natural path of bank credit expansion, and the next boom proceeds on its way sowing the seeds for the next inevitable bust.” (Pg. 77-78)
He continues, “The depression is the painful but necessary process by which the free market sloughs off the excesses and errors of the boom and reestablishes the market economy in its function of efficient service to the mass of consumers. Since the factors of production have been bid too high in the boom… prices of labor and goods … must be allowed to fall until proper market relations are resumed… Thus, the Misesian theory of the business cycle accounts for all of our puzzles: The repeated and recurrent nature of the cycle, the massive cluster of entrepreneurial error, the far greater intensity of the boom and bust in the producers’ goods industries.” (Pg. 85-86) He concludes, “Thus, what the government should do, according to the Misesian analysis of the depression, is absolutely nothing. It should … maintain a strict hands-off, ‘laissez-faire’ policy.” (Pg. 87-88)
Friedrich Hayek states, “I hope none of you has suspected me of doubting even for a moment that technically there is no problem in stopping inflation. If the monetary authorities really want to and are prepared to accept the consequences, they can always do so practically overnight… a credible announcement that they will not increase the quantity of bank notes in circulation and bank deposits, and, if necessary, even decrease them, will do the trick… What I am concerned about is not the technical but the political possibilities. Here… we face a task so difficult that … highly competent people, have resigned themselves to the inevitability of indefinitely continued inflation.” (Pg. 93)
Later, he says, “I am NOT saying that once we embark on inflation we are bound to be drawn into a galloping hyper-inflation… All I am contending is that IF we wanted to perpetuate the peculiar prosperity-and-job-creating effects of inflation we would have progressively to step it up and must never stop increasing its rate. That this is so has been empirically confirmed by the Great German inflation of the early 1920s… What we are experiencing is … the ‘stop-go’ policy in which… the authorities get alarmed and try to brake, but only with the result that even before the rise of prices has been brought to a stop, unemployment begins to assume threatening proportions and the authorities feel forced to resume expansion.” (Pg. 102-103)
He concludes his essay, “it seems to me that at the present time… there is no chance of meeting the problem of international inflation by restoring an international gold standard, even if this were practical policy. The central problem which must be solved before we can hope for a satisfactory monetary order is the problem of wage determination.” (Pg. 110)
Roger Garrison concludes the book with the statement, “Although the purging in the 1930s of capital theory from macroeconomics consigned the Austrian theory of the business cycle to a minority view, a number of economists working within the Austrian tradition continue the development of capital-based macroeconomics.” (Pg. 120)
This book will be of keen interest to those studying Austrian economics, and the Business Cycle in general.
Roger W. Garrison wrote in his Introduction to this 1978 collection, “The four essays in this volume, each written by a major figure in the Austrian school of economics, set out and apply a distinctive theory of the business cycle. The span of years (1932-1970) over which they appeared saw a dramatic waxing and then waning of the prominence---both inside and outside the economics profession---of the Austrian theory… What happened over the span of nearly forty years to account for the rise and fall of this theory of boom and bust? The simple answer is… the Keynesian revolution…” (Pg. 7-8) He continues, “The offering of these four separate and distinct essays on the Austrian theory carries the message that there is no single canonical version of the theory… the theory allows for variations on a theme. The market works; it tailors production decisions to consumption preferences… as the economy becomes more capital intensive, the time elements takes on greater significance. The role of the interest rate in allocating resources over time becomes an increasingly critical one… if the interest rate is wrong, possibly because of central bank policies aimed at ‘growing the economy,’ then the market goes wrong.” (Pg. 13)
Ludwig von Mises states in his 1936 essay, “the banks… intervene on the market … as ‘suppliers’ of additional credit…produc[ing] a lowering of the rate of interest… The lowering of the interest rate stimulates economic activity. Projects which would not have been thought ‘profitable’ if the rate of interest had not been influenced by the manipulations of the banks, and which … would not have been undertaken, are nevertheless found ‘profitable’ and can be initiated… This upward movement could not… continue indefinitely… As soon as public opinion becomes aware that there is no reason to expect an end to the inflation… panic sets in…The value of the currency collapses… The crisis and the ensuing period of depression are the culmination of the period of unjustified investment brought about by the extension of credit… the artificial ‘boom’ had been brought on by the extension of credit and by lowering of the rate of interest consequent on the intervention of the banks.” (Pg. 28-32)
He continues, “Wages increase in periods of expansion. In periods of contraction they ought to fall, not only in money terms, but in real terms as well. By successfully preventing the lowering of wages during a period of depression, the policy of the trade unions makes unemployment a massive and persistent phenomenon. Moreover, this policy postpones the recovery indefinitely.” (Pg. 33)
Gottfried Haberler notes, “The traditional monetary theory… regards the upward and the downward swing of the business cycle as a replica of a simple government inflation or deflation.” (Pg. 44) He adds, “The principal defect of those theories is that they do not distinguish between a fall of prices which is DUE TO AN ACTUAL CONTRACTION of the circulating medium and a fall of process which is caused by a LOWERING OF COST as a consequence of inventions and technological improvements.” (Pg. 47)
He states, “[of the] inflation during and after the war… By means of such a monetary policy is it is always possible to drive any stock of gold, however large it may be, out of the country. The natural thing is then to substitute later a gold-exchange standard for the abandoned gold standard, which means… the erection of a credit structure on the existing stock of gold.” (Pg. 59-60)
Murray Rothbard asserts, “Fortunately, a correct theory of depression and of the business cycle DOES exist, even though it is universally neglected in present-day economics… these theorists saw that another crucial institution had developed in the mid-eighteenth century… This was the institution of banking, with its capacity to expand credit and the money supply… It was the operations of these commercial banks which… held the key to the mysterious recurrent cycles of expansion and contraction, of boom and bust, that had puzzled observers since the mid-eighteenth century.” (Pg. 74)
He explains, “the depression phase of the business cycle… comes out of… the preceding expansionary boom. It is the preceding inflation that makes the depression phase necessary… The depression is the unpleasant but necessary reaction to the distortions and excesses of the previous boom… Why, then, does the next cycle begin? Why do business cycles tend to be recurrent and continuous? Because when banks have pretty well recovered… they are then in a confident position to proceed to their natural path of bank credit expansion, and the next boom proceeds on its way sowing the seeds for the next inevitable bust.” (Pg. 77-78)
He continues, “The depression is the painful but necessary process by which the free market sloughs off the excesses and errors of the boom and reestablishes the market economy in its function of efficient service to the mass of consumers. Since the factors of production have been bid too high in the boom… prices of labor and goods … must be allowed to fall until proper market relations are resumed… Thus, the Misesian theory of the business cycle accounts for all of our puzzles: The repeated and recurrent nature of the cycle, the massive cluster of entrepreneurial error, the far greater intensity of the boom and bust in the producers’ goods industries.” (Pg. 85-86) He concludes, “Thus, what the government should do, according to the Misesian analysis of the depression, is absolutely nothing. It should … maintain a strict hands-off, ‘laissez-faire’ policy.” (Pg. 87-88)
Friedrich Hayek states, “I hope none of you has suspected me of doubting even for a moment that technically there is no problem in stopping inflation. If the monetary authorities really want to and are prepared to accept the consequences, they can always do so practically overnight… a credible announcement that they will not increase the quantity of bank notes in circulation and bank deposits, and, if necessary, even decrease them, will do the trick… What I am concerned about is not the technical but the political possibilities. Here… we face a task so difficult that … highly competent people, have resigned themselves to the inevitability of indefinitely continued inflation.” (Pg. 93)
Later, he says, “I am NOT saying that once we embark on inflation we are bound to be drawn into a galloping hyper-inflation… All I am contending is that IF we wanted to perpetuate the peculiar prosperity-and-job-creating effects of inflation we would have progressively to step it up and must never stop increasing its rate. That this is so has been empirically confirmed by the Great German inflation of the early 1920s… What we are experiencing is … the ‘stop-go’ policy in which… the authorities get alarmed and try to brake, but only with the result that even before the rise of prices has been brought to a stop, unemployment begins to assume threatening proportions and the authorities feel forced to resume expansion.” (Pg. 102-103)
He concludes his essay, “it seems to me that at the present time… there is no chance of meeting the problem of international inflation by restoring an international gold standard, even if this were practical policy. The central problem which must be solved before we can hope for a satisfactory monetary order is the problem of wage determination.” (Pg. 110)
Roger Garrison concludes the book with the statement, “Although the purging in the 1930s of capital theory from macroeconomics consigned the Austrian theory of the business cycle to a minority view, a number of economists working within the Austrian tradition continue the development of capital-based macroeconomics.” (Pg. 120)
This book will be of keen interest to those studying Austrian economics, and the Business Cycle in general.
August 5, 2018
A collection of essays that forms a very helpful introduction to the nuances and particularities of the Austrian theory of the business cycle. Of particular importance is Murray Rothbard's essay "Economic Depressions: Their Cause and Cure" which is a must read for anyone who wants to acquire a basic understanding not only of what happened during the Great Depression, but more contemporary events such as the market crash of 2008.
August 30, 2020
This is a short book of 6 essays about the Austrian theory of the trade cycle (business cycle). If you need a brief overview of it, this is the place to go. The into by Roger W. Garrison and essay by Ludwig von Mises are excellent concise introductions. The essay by Gottfried Haberler probably explains the concepts better than F. A. Hayek, who first introduced it to Americans. Add in essays by Rothbard and Hayek, and this is one heck of a primer on the Austrian theory.
September 1, 2020
An excellent resources with various articles by numerous Austrian economists discussing the business cycle of boom and bust, and the Great Depression specifically. They approach the subject from slightly different angles but all agree that government intervention with the banking system is the primary cause of inflation and economic depression and that government intervention does not resolve, but only makes an economic depression worse.
June 22, 2025
Government never learns
The Austrian theory of the business cycle is the most comprehensive theory we have today but it requires politicians and intellectuals to restrain from intervening in the economy.
The Austrian theory of the business cycle is the most comprehensive theory we have today but it requires politicians and intellectuals to restrain from intervening in the economy.
May 24, 2021
Muy buen libro para entender la teoría de las crisis desde la perspectiva austríaca, o desde la perspectiva de David Ricardo, que viene a ser prácticamente la misma.
September 20, 2022
A good intro to sound money concepts. The applications to our current situation, at least in America, are striking.
May 19, 2016
This is essentially a collection of five essays (plus a short introduction), all of which are fundamental elaborations - statements and restatements - of the Austrian Business Cycle Theory. It escapes me, it truly does, why you'd want to read six versions of the same thing, which are pretty much written from a near- identical perspective, unless 1) you are interested in intellectual history and want to study the small differences between the Austrian authors, or else 2) you are a doctrinaire Austrian and want to be affirmed in the truth of your dogmas by endless repetition. This collection lacks historical context and critical perspective. It would have been nice to hear more debate with Keynesians and Monetarists - and, in general, more engagement with critics.
The essays themselves - especially Haberler's and Mises's essays - are wonderfully clear and well-argued. I remain convinced that the Austrian understanding of trade cycles captures something essential about booms and busts - namely the intertemporal "capital structure" perspective - which is lacking in neoclassical and Keynesian analyses. Nonetheless, Austrians are not doing themselves any favours by isolating themselves from the mainstream of the profession (or is it the mainstream profession that is forcing them into isolation?). There should be more open debate about theory and empirical data. Does the Austrian theory actually describe real-life depressions?
Does the laissez-faire proscription of Austrianism - do nothing and let the capital structure readjust itself - actually lessen the impact of depressions and produce a speedier recovery? This is what e.g. Murray N. Rothbard forcefully argues in his essay. The importance of government-created cheap credit on creating unsustainable investment patterns is obvious. But theory needs to be tested against empirical observations, since just having a good theory is not enough - at least if one wants to convince policy makers and other economists, who have rightly seen monetarist and Keynesian measures as potentially very helpful (at least in the short run) remedies to the same ills.
Many of these essays are of great importance to the field of economics of the trade cycle. It is too bad that the collection is rather unremarkable. It would have benefited from more historical context for the development of the theories, better editorship, better introduction, and critical commentary.
For now, the Austrian theory remains on the margins of the profession, where it doesn't belong.
The essays themselves - especially Haberler's and Mises's essays - are wonderfully clear and well-argued. I remain convinced that the Austrian understanding of trade cycles captures something essential about booms and busts - namely the intertemporal "capital structure" perspective - which is lacking in neoclassical and Keynesian analyses. Nonetheless, Austrians are not doing themselves any favours by isolating themselves from the mainstream of the profession (or is it the mainstream profession that is forcing them into isolation?). There should be more open debate about theory and empirical data. Does the Austrian theory actually describe real-life depressions?
Does the laissez-faire proscription of Austrianism - do nothing and let the capital structure readjust itself - actually lessen the impact of depressions and produce a speedier recovery? This is what e.g. Murray N. Rothbard forcefully argues in his essay. The importance of government-created cheap credit on creating unsustainable investment patterns is obvious. But theory needs to be tested against empirical observations, since just having a good theory is not enough - at least if one wants to convince policy makers and other economists, who have rightly seen monetarist and Keynesian measures as potentially very helpful (at least in the short run) remedies to the same ills.
Many of these essays are of great importance to the field of economics of the trade cycle. It is too bad that the collection is rather unremarkable. It would have benefited from more historical context for the development of the theories, better editorship, better introduction, and critical commentary.
For now, the Austrian theory remains on the margins of the profession, where it doesn't belong.
June 9, 2024
The essay by Rothbard goes to show that those who accuse him of not having a sense of humor don't know what they're talking about.
Unfortunately, I had to deduct a star because of Mises' mustache. Nazism went out of fashion in the late '30s, you pleb.
https://mises.org/library/book/austri...
Unfortunately, I had to deduct a star because of Mises' mustache. Nazism went out of fashion in the late '30s, you pleb.
https://mises.org/library/book/austri...
Want to read
April 17, 2012How The Superbowl Encourages Socialism:
http://generation-add.blogspot.com/20...
<
http://generation-add.blogspot.com/20...
<
February 13, 2013
Essays by Mises, Hayek, Rothbard, and others less well-known giving an overview of the Austrian theory of the business cycle.
The essays are generally very accessible (particularly Rothbard's), and make the theory not only very clear, but almost painfully obvious. Let's just say that finishing this book, then hearing clips from Obama's 2013 State of the Union address did nothing to raise my estimation of his knowledge of how the economy works. It also sadly made clear that we're in for a real corker of a "market adjustment" (read: Depression) in the very near future.
The audiobook is a bit frustrating. The MP3 files are small, because they're 32 kbps, which means there is distracting audio artifacting at times. It also sounds to have been recorded in an amateur setting, as there is occasional airplane and car noise in the background, and noticeable "room echo" more often than not. I was able to adjust to these deficiencies, however, and was happy to have done so in the end.
The essays are generally very accessible (particularly Rothbard's), and make the theory not only very clear, but almost painfully obvious. Let's just say that finishing this book, then hearing clips from Obama's 2013 State of the Union address did nothing to raise my estimation of his knowledge of how the economy works. It also sadly made clear that we're in for a real corker of a "market adjustment" (read: Depression) in the very near future.
The audiobook is a bit frustrating. The MP3 files are small, because they're 32 kbps, which means there is distracting audio artifacting at times. It also sounds to have been recorded in an amateur setting, as there is occasional airplane and car noise in the background, and noticeable "room echo" more often than not. I was able to adjust to these deficiencies, however, and was happy to have done so in the end.
June 27, 2009
This book explains some of the main ideas of the Austrian economic theory. With essays by von Mises, Haberler, Rothbard, and Hayek, this is a good place to get some of the basics from the original sources. It was interesting to me that each writer, often writing about near the same thing, wrote in such an individual style that some were easy to understand, and others very difficult. This book has valuable ideas, especially in this crazy time of economic “crisis” (depression, anyone?) This is one small book that really packs a punch!
December 18, 2010
The basic outline of the Austrian school of economic thought. Economics in general is rarely an easy read, especially for non economists like myself, but this book sketched out the basic theory in a fairly clear manner. The short of it is, improper interest rates (generally low rates instigated by the government) create economic booms via malinvestments, but like every good binger the hangover is killer. And yes, that analogy comes from this great YouTube video "Fear the Boom and Bust": http://www.youtube.com/watch?v=d0nERT...
This is a short book and it is worth reading.
This is a short book and it is worth reading.
January 26, 2009
I found this book very enlightening on opposing economic views. In opposition to Keynes, the Austrian school of economics makes a lot of sense to me.
April 22, 2009
Informative
October 21, 2011
Not light bedtime reading, but a lot of interesting comment on the worldwide financial markets and the South African labour market of today, as written more than 50 years ago...
October 11, 2012
Helpful to economically ignorant people (such as myself) in understanding the fundamental ideas of Austrian economics.
October 24, 2014
A great short book describing the Austrian analysis of the Trade Cycle or stated another way, the correct analysis of the Trade Cycle.
July 29, 2016
An excellent collection of essays and lectures on capital based macroeconomics. Roger Garrison's introduction and summary are fantastic.
March 4, 2024
Good introduction to the topic
Displaying 1 - 23 of 23 reviews