Why Not Understanding ABCT Helps Socialism
In my view, the most important Austrian theory is Austrian business cycle theory (ABCT). Understanding that is of enormous importance in understanding financial market movements and swings in economic growth. But although ABCT (albeit in a perhaps modified form) have gained increasing support in leading institutions and publications such as the Bank of International Settlements and The Economist, most so-called free market advocates refuse to embrace it.
The people benefiting most from that are the socialists. Whether unfair or not, America have in Sweden and other European countries become a symbol of capitalism. Socialists use America as a horror example of how bad things will be without the welfare state (which it in this debate is assumed to lack), while libertarians use America as a role model for how great things will be without the welfare state.
Now that due to Greenspan's destructive monetary policies, America is heading towards a recession, socialists will use this as "proof" that the welfare state is needed. Had free market advocates embraced ABCT, they would have been able to counter the socialist argument, but now that they don't embrace ABCT, they will lose the debate. Today on LRC I write on how in a similar fashion, the case for tax cuts in America will seemingly get discredited, because supply-siders refuse to embrace ABCT.
Another example of this is how in Sweden, opponents of the extensive welfare state, are seemingly discredited by the current cyclical boom. Had they embraced ABCT, they would have been able to answer the socialists, but instead they let the socialists win the debates.
Comments (5)
They should embrace what they believe is right, not what helps "the movement".
- Josh
Published: November 1, 2006 2:03 PM
The BIS doc is great! If CBs will pay attention, it could be the next best thing to a gold standard.
Along those lines, it's possible that the financial deregulation of the 1970's may have provided a cushion against CB credit expansion. I recently read that banks have just 30% of the total market for loans in the US, the rest coming from corporate bonds and large lenders like GE Capital. These lenders don't accept deposits, so there is no double counting of money as exists with banks, and consequently less of the negative effects related to credit expansion/contraction that come with fractional banking. Could further deregulation of banking make CBs impotent?
Published: November 1, 2006 3:15 PM
No, becuase CB's can print more currency. If the government allows people to use other currencies, then CB's will go the way of the dodo.
Published: November 1, 2006 5:36 PM
Amen!
Published: November 1, 2006 6:55 PM
If it were that simple...
The reason why CB has an opportunity to debase the currency is because absolute majority of people believe the greenish papers to be *the* money.
A permission to use other currencies would not change the belief. (In fact, in US no one is prohibited from using other things as currencies - although the feds make it rather bothersome, since businessed will have to do seriously intricate accounting for the tax purposes). Neither anyone is prohibited from making loans with consideration specified in units of account other than US dollars, as long as there's an explicit clause covering repayment in US dollars (i.e. "pay me 5oz of gold by 7/23/2010 or a spot price for the 5oz gold in US dollars at the close of previous trading day as published by Kitco").
The law says that US dollars must be accepted in repayments of the loans - but it does not say how many US dollars. It merely precludes issuance of alternative currencies denominated in US dollars.
Published: November 3, 2006 10:52 PM