Interest Rates in Austrian Theory

 

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What role do interest rates play in the Austrian Business Cycle Theory?

Professor Tyler Cowen explains the Austrian view that interest rates affect the way entrepreneurs invest. When government expansion of the money supply affects interest rates, Austrians argue that these interest rates give entrepreneurs false signals about where and how much to invest. Professor Cowen explores these arguments and some counterarguments from other business cycle theories.

6 Comments

  1. Matt Wavle

    We need to get the State OUT of the "business" of business.  They have to place setting interest rates, setting price floors or upper limits, setting wages, etc

  2. [email protected]

    If the government wasn’t already artificially upholding the monetary system via the FED then it would have already collapsed. 

  3. Ryan Boyd

    Interest rates do seem to be important when it comes to stimulating consumption such as with the housing market. However, should this be decided by the Government as a safeguard? And what would happen with a free banking system in the entirety of the business cycle?

  4. GeF

    gotta use financing , look for the most stable

  5. Kenny Legge

    I would love to have this topic as an entire class. Or a class comparing the major economic theories would be wonderful

  6. Mike Hines

    If interest rates were to rise sharply, I would see my savings lose real value, and would be encouraged to spend what I have saved quickly, before I lost any more purchasing power. I would also borrow at longer maturities, expecting inflation to reduce the real value of my debt.  

    I’m not sure letting interest rates rise gets us out of the spending/borrowing cycle. It just provides different incentives for different actors. 

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