Austrian Business Cycle Theory, Keynes’s General Theory, Soaring Wheat Prices, and Subprime Mortgage Write-Downs

Abstract

Keynes’s presentation of own rates of interest on wheat and housing is set within Austrian business cycle theory, to show that soaring wheat prices and subprime mortgage writedowns are expected, when a monetary authority holds interest rates too low for too long. From that basis, further interest rate cuts are an unlikely remedy for a recession whose roots lie in a proliferation of credit.