"For what it's worth, I think Hayek has a more useful set of ideas on the business cycle than Mises anyway. Keynes even made basically the point in Ch. 16 of the GT that Hayek does in Prices and Production - that a lower interest rate will make production processes longer (and also more capital intensive - but the elongation is the main point). Hayek's business cycle theory hinges on the fixed [and specific] nature of those investments in longer production processes. That guarantees that adjustment is not costless. I'm not that familiar with Mises, but I don't think he has that mechanism that Hayek does.
My concern with all the Austrian work is that while it may be a very interesting description of what happens to what they call the "time structure of production" in response to the interest rate, there's no obvious reason to tie that to the business cycle. Their story is "during the boom interest rates are artificially low, and during the bust they go back to their natural rate". In a loanable funds world, that makes sense. But in a liquidity preference world, the story is "interest rates are too high for full employment". In a liquidity preference world where those interest rates are kept too high by a zero lower bound, you of course have even more trouble.
So the whole Hayekian story is predicated on the assumption that we move below Wicksell's natural rate during the boom, and return to it in the bust. Our best understanding of macroeconomics (from Hicks et al.) says that we're at Wicksell's natural rate during periods of full employment, and are above it during the bust.
In other words, the Hayekian mechanism should produce a capital structure that is just right during the boom and too short during the bust - exactly the opposite of their normal story.
So while all the fluctuations of the "temporal structure of capital" are quite interesting to me, I don't think they offer much in the way of a business cycle theory."
Monday Smackdown: New York Times Edition
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