Advertisement

The Review of Austrian Economics

, Volume 28, Issue 2, pp 151–165 | Cite as

Expectation in Austrian business cycle theory: Market share matters

  • Nicolas CachanoskyEmail author
Article

Abstract

One of the most important objections to the Mises-Hayek business cycle theory is the rational expectations critique. The debate between supporters and critics of the Mises-Hayek theory has not paid sufficient attention to the problem of differences in expectations and the market share in the allocation of production factors. I represent financially the effects that occur under the Austrian business cycle theory in the market of production factors as well as how economic imbalances occur when a central bank follows an expansionary policy and entrepreneurs have different expectations.

Keywords

Austrian business cycle theory Rational expectations Market share EVA(R) Economic value added 

References

  1. Barnett, W., II, & Block, W. E. (2005). Professor Tullock on Austrian business cycle theory. Advances in Austrian Economics, 8, 431–443. doi: 10.1016/S1529-2134(05)08018-X.CrossRefGoogle Scholar
  2. Barnett, W., II, & Block, W. E. (2006). Tyler Cowen on Austrian business cycle theory: a critique. New Perspectives on Political Economy, 2(2), 26–85.Google Scholar
  3. Bernanke, B. S., & Gertler, M. (1989). Agency costs, net worth, and business fluctuations. The American Economic Review, 79(1), 14–31.Google Scholar
  4. Bernanke, B. S., & Gertler, M. (1990). Financial fragility and economic performance. Quarterly Journal of Economics, 105(1), 87–114.CrossRefGoogle Scholar
  5. Bernanke, B. S., Gertler, M., & Gilchrist, S. (1996). The financial accelerator and the flight to quality. The Review of Economics and Statistics, 78(1), 1–15.CrossRefGoogle Scholar
  6. Bernanke, B. S., Gertler, M., & Gilchrist, S. (1999). The financial accelerator in a quantitative business cycle framework. In J. Taylor (Ed.), Handbook of macroeconomics 1 (pp. 1341–1393). Amsterdam: North-Holland.Google Scholar
  7. Block, W. E. (2001). Yes, we have no chaff: a reply to Wagner’s “Austrian cycle theory: saving the wheat while discarding the chaff”. Quarterly Journal of Austrian Economics, 4(1), 63–73.CrossRefGoogle Scholar
  8. Buchanan, J. M. (1964). What should economists do? Southern Economic Journal, 30(3), 213–222.CrossRefGoogle Scholar
  9. Butos, W. N. (1997). Toward an Austrian theory of expectations. Advances in Austrian Economics, 4, 75–94.CrossRefGoogle Scholar
  10. Caballero, R. J. (2010). Macroeconomics after the crisis: time to deal with the pretense-of-knowledge syndrome. Journal of Economic Perspectives, 24(4), 85–102. doi: 10.1257/jep.24.4.85.CrossRefGoogle Scholar
  11. Cachanosky, J. C. (1999). Value based management. Libertas, 30(May), 179–211.Google Scholar
  12. Cachanosky, N. (2012). The Mises-Hayek business cycle theory, fiat currencies and open economies. The Review of Austrian Economics. doi: 10.1007/s11138-012-0188-2.Google Scholar
  13. Cachanosky, N. (2014). The international effects of monetary policy in the capital structure of production: the cases of Colombia and Panama (2002–2007). The Quarterly Review of Economics and Finance. doi: 10.1016/j.qref.2014.03.003.Google Scholar
  14. Caldwell, B. J. (1984). Praxeology and its critics: an appraisal. History of Political Economy, 16(3), 363–379.CrossRefGoogle Scholar
  15. Callahan, G., & Horwitz, S. G. (2010). The role of ideal types in Austrian Business cycle theory. Advances in Austrian Economics, 14(2010), 205–224. doi: 10.1108/S1529-2134(2010) 0000014013.CrossRefGoogle Scholar
  16. Caplan, B. (1997). Why I am not an Austrian economist. Unpublished Manuscript.Google Scholar
  17. Carilli, A. M., & Dempster, G. M. (2001). Expectations in Austrian business cycle theory: an application of the prisoner’s dilemma. The Review of Austrian Economics, 14(4), 319–330.CrossRefGoogle Scholar
  18. Carilli, A. M., & Dempster, G. M. (2008). Is the Austrian business cycle theory still relevant? The Review of Austrian Economics, 21(4), 271–281. doi: 10.1007/s11138-008-0044-6.CrossRefGoogle Scholar
  19. Ćorić, B. (2011). The financial accelerator effect: concept and challenges. Financial Theory and Practice, 35(2), 171–196.Google Scholar
  20. Cowen, T. (1997). Risk and business cycles: New and old Austrian perspectives. New York: Routledge.Google Scholar
  21. Ebeling, R. M. (Ed.). (1978). The Austrian theory of the trade cycle and other essays (1996th ed.). Auburn: Ludwig von Mises Institute.Google Scholar
  22. Eusepi, S., & Preston, B. (2011). Expectations, learning, and business cycle fluctuations. American Economic Review, 101(6), 2844–2872. doi: 10.1257/aer.101.6.2844.CrossRefGoogle Scholar
  23. Evans, A. J., & Baxendale, T. (2008). Austrian business cycle theory in light of rational expectations: the role of heterogeneity, the monetary footprint, and adverse selection in monetary expansion. The Quarterly Journal of Austrian Economics, 11(2), 81–93. doi: 10.1007/s12113-008-9034-6.CrossRefGoogle Scholar
  24. Evans, A. J., & Friedman, J. (2011). “Search” vs. “Browse”: a theory of error grounded on radical (not Rational) ignorance. Critical Review, 23(1–2), 73–104. doi: 10.1080/08913811.2011.574471.CrossRefGoogle Scholar
  25. Friedman, M. (1993). The “Plucking model” of business fluctuations revisited. Economic Inquiry, XXXI, 171–177.CrossRefGoogle Scholar
  26. Fuster, A., Laibson, D., & Mendel, B. (2010). Natural expectations and macroeconomic fluctuations. Journal of Economic Perspectives, 24(4), 67–84.CrossRefGoogle Scholar
  27. Garrison, R. W. (1986). From Lachmann to Lucas: On Institutions, Expectations, and Equilibrating Tendencies. In I. M. Kirzner (Ed.), Subjectivism, intelligibility and economic understanding (pp. 87–101). New York: New York University Press and Macmillan Co.Google Scholar
  28. Garrison, R. W. (1989). The Austrian theory of the business cycle in the light of modern macroeconomics. The Review of Austrian Economics, 3(1), 3–29. doi: 10.1007/BF01539555.CrossRefGoogle Scholar
  29. Garrison, R. W. (1991). New classical and old Austrian economics: equilibrium business cycle theory in perspective. The Review of Austrian Economics, 5(1), 91–103. doi: 10.1007/BF00843932.CrossRefGoogle Scholar
  30. Garrison, R. W. (1996). Friedman’s “Plucking mode”: comment. Economic Inquiry, XXXIV, 799–802.CrossRefGoogle Scholar
  31. Garrison, R. W. (2001). In M. J. Rizzo & L. H. White (Eds.), Time and money. The macroeconomics of capital structure (2002nd ed.). London: Routledge.Google Scholar
  32. Hayek, F. A. (1931). Prices and production (1967th ed.). New York: Augustus M. Kelley.Google Scholar
  33. Hayek, F. A. (1933). Monetary theory and the trade cycle. (N. Kaldor & H. M. Croome, Trans.). New York: Sentry Press.Google Scholar
  34. Hayek, F. A. (1967). Studies in philosophy, politics and economics (1978th ed.). London: Routledge & Kegan Paul.Google Scholar
  35. Hayek, F. A. (1973). Law, legislation and liberty: Rules and order, vol. 1 (1983rd ed.). Chicago: The University of Chicago Press.Google Scholar
  36. Hoffmann, A. (2010). An overinvestment cycle in Central and Eastern Europe? Metroeconomica, 61(4), 711–734. doi: 10.1111/j.1467-999X.2010.04103.x.CrossRefGoogle Scholar
  37. Hoffmann, A. (2012). Zero-interest rate policy and unintended consequences in emerging markets. SSRN Electronic Journal. doi: 10.2139/ssrn.2055690.Google Scholar
  38. Horwitz, S. G. (2011). The expanding sphere of opportunities. The freeman online.Google Scholar
  39. Hummel, J. R. (1979). Problems with Austrian business cycle theory. Reason Papers, 5(Winter), 41–53.Google Scholar
  40. Kamber, G., & Thoenissen, C. (2011). The financial accelerator and monetary policy rules. Victoria.Google Scholar
  41. Kirzner, I. M. (1965). What economists do. Southern Economic Journal, 31(3), 257–261.CrossRefGoogle Scholar
  42. Kohn, M. (2004). Value and exchange. Cato Journal, 24(3), 303–339.Google Scholar
  43. Kollar, M. (2008). Production structure in the context of international trade. The Quarterly Journal of Austrian Economics, 11(1), 18–42. doi: 10.1007/s12113-008-9029-3.CrossRefGoogle Scholar
  44. Kuhn, T. S. (1962). The structure of scientific revolutions (1996th ed.). Chicago: The University of Chicago Press.Google Scholar
  45. Lachmann, L. M. (1943). The rôle of expectations in economics as a social science. Economica, 10(37), 12–23.CrossRefGoogle Scholar
  46. Lachmann, L. M. (1977). In W. E. Grinder (Ed.), Capital, expectations, and the market process. Kansas City: Sheed Andrews and McMeel.Google Scholar
  47. Lakatos, I. (1978). In J. Worral & G. Currie (Eds.), The methodology of scientific research programmes (1999th ed., Vol. 1). Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  48. McAuliff, R. E. (1985). The rational expectations hypothesis and economic analysis. Eastern Economic Journal, 11(4), 331–341.Google Scholar
  49. McCallum, B. T. (1982). Macroeconomics after a decade of rational expectations: some critical issues. Economic Review, November/D, 3–12.Google Scholar
  50. O’Driscoll, G. P. J., & Rizzo, M. J. (1985). In M. J. Rizzo & L. H. White (Eds.), The economics of time and ignorance (1996th ed.). New York: Routledge.Google Scholar
  51. Sargent, T. J. (2008). Rational expectations. The concise encyclopedia of economics. Retrieved January 30, 2014, from http://www.econlib.org/library/Enc/RationalExpectations.html.
  52. Stern, J. M., Shiely, J. S., & Ross, I. (2001). The EVA challenge. New York: Wiley.Google Scholar
  53. Stewart III, B. G. (1991). The quest for value. Harper Collins Publishers.Google Scholar
  54. Tullock, G. (1988). Why the Austrians are wrong about depressions. The Review of Austrian Economics, 2(1), 73–78.CrossRefGoogle Scholar
  55. Tullock, G. (1989). Reply to comment by Joseph T. Salerno. The Review of Austrian Economics, 3(1), 147–149.CrossRefGoogle Scholar
  56. von Mises, L. (1912). The theory of money and credit. (H. E. Batson, Trans.) (1981st ed.). Indianapolis: Liberty Fund.Google Scholar
  57. von Mises, L. (1943). “Elastic expectations” and the Austrian theory of the trade cycle. Economica, 10(39), 251–252.CrossRefGoogle Scholar
  58. von Mises, L. (1949). Human action (1996th ed.). Irvington-on-Hudson: The Foundation for Economic Education.Google Scholar
  59. von Mises, L. (1955). Buck hills lectures. Irvington-on-Hudson: The Foundation for Economic Education.Google Scholar
  60. Wagner, R. E. (1999). Austrian cycle theory: saving the wheat while discarding the chaff. The Review of Austrian Economics, 12, 65–80.CrossRefGoogle Scholar
  61. White, L. H., & Selgin, G. A. (2010). The Austrian theory of the business cycle in a fiat money regime.Google Scholar
  62. Yeager, L. B. (1986). The significance of monetary disequilibrium. Cato Journal, 6(2), 369–399.Google Scholar
  63. Young, A. T. (2012). Austrian Business Cycle Theory: A Modern Appraisal. In P. J. Boettke & C. J. Coyne (Eds.), Oxford handbook of Austrian economics. Oxford: Oxford University Press.Google Scholar
  64. Young, D. S., & O’Byrne, S. E. (2001). EVA and value-based management. New York: McGraw-Hill.Google Scholar
  65. Zanotti, G. J., & Cachanosky, N. (2013). The epistemological implications of Machlup’s interpretation of Mises’s epistemology. SSRN Electronic Journal. doi: 10.2139/ssrn.2229570.Google Scholar

Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Department of EconomicsMetropolitan State University of DenverDenverUSA

Personalised recommendations