Garrison on Austrian trade cycle theory II

Here is a post from 2011 where Roger Garrison explains Austrian Capital Theory and the problem of artificially low interest rates. For some context, the  ASX 30 Day Interbank Cash Rate Futures market is forecasting that official interest rates will decline to 0.5% by February next year.

Roger Garrison’s work can be downloaded from the Mises Institute. His book is at Amazon.

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4 Responses to Garrison on Austrian trade cycle theory II

  1. Troy

    Austrian trade cycle theory proceeds on the premise that objective prices should be determined on the market, and are the result of subjective valuations.

    Mainstream pundits purport to support the notion of subjective value, promulgate the idea, teach it and then deny it time and again. The classic example is central banking: that the market rate of interest, which is the time price of value (and money), is not set by the market but is monopoly-controlled by the central bank unequivocally reveals their lip servicing of subjective value and their confidence in state-imposed objective value. They are bed-fellows of those tacit socialist Keynesians, who think that by consumers spending up, we can spend our way into prosperity. (Even Lowe acknowledges the high level of private debt for Australians!)

    And, again, the mainstream pundits get it wrong, yet again, in their capital theory when they think that they can control investment in capital goods via the use of this blunt lever of the market rate of interest. Unfortunately, Mises and Hayek (and Böhm-Bawerk) were correct – investment flows into the wrong sectors in the economy, because entrepreneurs have been mis-led as to the stock of available savings — which in Australia at present is very low — and expand production of goods and services that marginal price signals would suggest are not otherwise at present required by businesses and consumers or in the amounts they produce.

    Distorted interest rate signals distort the roundabout nature of the structure of production, and can lead to price increases in certain sectors, overblown production in other sectors and underwhelming demand in other sectors. Money interposes between transactions and acts as the quantity of exchange units that forms the universal medium of exchange.

    It is ironic that, given that mainstream economics supports the notion of free markets, at the same time it promotes the notion of market failure, one that can apparently only be resolved by the monopoly control of the money supply and the market rate of interest. So, what should be the correct level of interest rates in Australia? I do not know; neither do you! One thing is sure, it is certainly higher than an overnight cah arte of 0.75%

    From an ethical perspective, central banking is formalised robbery of the common man. However, Australia has enough constraints on state intervention to allow entrepreneurs and markets work and continue on with their productive tasks of economic growth and the allocation of scarce goods and resources.

  2. Bunyip Bill

    Pity, having all that wisdom and knowledge , yet no ability to speak clearly. Like having a Rolls Royce with no wheels..

  3. I_am_not_a_robot

    Australia has an overall declining Gross Fixed Capital Formation for six years now, according to Trading Economics a unique situation in the past 60 years at least.
    Wiki tells me the GFCF is an indicator of how much of the new value added in the economy is invested rather than consumed and an indicator of future economic growth.
    Productivity growth is flat and the personal saving rate has overall declined since the 1980s, now heading into the negative.

    Snowy 2 is an apt metaphor for the economy as a whole, government run at vast cost for negative added value.

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