The Austrian Theory of the Business Cycle

My opponents has responded in the comments with a post that vastly exceeds the character limit. Because I will not break the rules in a similar manner my opponent has given himself an unfair advantage. This should be noted when it comes time to vote. Pro first states that “I wrote nothing about how a bank determines rates. “ implying that I strawmanned him. He follows that with the sentences “ I wrote the term "arbitrary" meaning not determined through the price system, but instead determined by the bank/banker using any method other than what the market dictates.” These two sentences contradict each other. As he admits he did in fact write about how a banks determine rates. He then states that consumers can know that a banks interest rates are artificial because they will differ from the interest rates of all the other banks. However, this assumes that all the other banks will be using the “natural rate”. He assumes what he is trying to prove. He then writes that a non natural interest rate is arbitrary because it is undetermined. This is false. It is determined by the supply and demand for loans . He claims that this is the same as the market determining it. The difference is that the supply for loans is not limited by voluntary savings due to artificial expansions of credit. He then states that he did not mention anything about fractional reserve banking. However, FRB is relevant because it allows loans to extend beyond savings creating an unnatural rate of interest. He then attempts to discredit my claim that panics are important to the ATBC. He starts by saying of my mises source “ Yes, I completely accept that Mises did write that. It was one paragraph out of so many I can't count them all.” Firstly, there were 17 paragraphs in the essay. It is not a tome. He then states that other expositions of the theory fail to mention the fear of hyper inflation. Firstly, this is false. There are numerous articles were it is mentioned and defended [1] [2] [3]. It has also, contrary to his other claim, been used by economists attacking the theory [4]. There can be no doubt, I hope, that Mises, the man who created the theory, and economists such as Gordon Tullock and Murray Rothbard understand the theory better than my opponent. Again, the fear of hyperinflation caused by public flight to real goods is the supposed reason why the inflation can not continue forever. This is one of the several arguments I made that were never adequately addressed. In my post I asked why consumers could not use artificial credit to purchase the products that artificial credit caused to investors to produce. Pro responds by saying “When the population consumes more, i.e. credit cards, they are not saving and that sends an accurate signal to manufacturers that they should make stuff to sell right then and there instead of borrowing for long term production increases. “ This does not respond to my question. Pro then states that firms miscalculate demand because the cost of investment has been artificially lowered. This is a non answer tot he question of why they miscalculate. He must explain WHY this would cause a miscalculation. Pro then states that the fact that savings, at some point, get spent justifies the idea that an increase in savings tells firms that there will be an increase in demand later leading to excess production. This is flawed both because an increase in general savings tells a particular firm nothing about future demand for its particular product and because firms are surely aware of the fact that interest rates do not reflect savings. Pro then responds to my stating that firms would have to be foolish to miscalculate demand due to thinking that a low interest rate signals increased savings by stating “ If money is cheap for a business to borrow, it reduces the risk of taking out a loan. Failure to take the risk, even knowing that savings didn't cause the reduced interest rate, is a net loss. Yes, some companies will fail because they didn't predict demand correctly, but many will succeed at least to the point where the investors get their money back and a little bit of profit before they go out of business. “ This does nothing to answer my objection. Pro then states that keynesian models have been proven wrong and that every time a politician has used them they have messed the economy up. He makes no citation or argument for this claim but uses it to brush off my falsifying his claim that all models assume liquidity away. This is uncompelling. Pro then writes “Spawktalk writes, "Since you did not respond to my argument." Let's see, you wrote, "it assumes the economy is at equilibrium" to which I replied with a quote from Mises himself indicating that the economy will never be at equilibrium. That, to me, appears that I addressed your argument. “ This seems to me to be extremely dishonest. The full qoute from my original post is this: “Secondly, it assumes the economy is at equilibrium. The reason that this theory requires full employment is because if the economy is in disequilibrium such that some resources are underemployed then there can be an increased purchasing of those goods with out a raise in prices.“ He has obviously not addressed this argument and has in fact attempted to pretend it does not exist. He engages in the same form of quote mining with regards to my argument about the ATBC assuming the credit goes into production. Pro writes “Spawktalk writes, "my opponent has conflated the proposition ‘raising interest rates cause recessions' with the proposition ‘conditions in which interest rates would rise if not for the government cause recessions'" which is a mischaracterization of my position. Please re-read what I wrote and explain how I indicated this. “ You indicated this because you explained away the lack of rising interest rates by government intervention. Pro also states that his claim that profits will be reduced assumes all els to be equal. He then accepts that demand for inputs will fall. This means that the price of inputs will fall and all els will not be equal in exactly the way I specified. Pro then states that Hayek and Mises are seen as intellectually honest, educated, and skilled because hayek got a shared nobel prize in 1972. This is a non sequitor. Finally, pro writes “Spawktalk writes, "I simply observed the obvious fact that their personal experiences had shaped their views. This does not entail anything about the truth value of those views." Let's see, does, "There is no doubt that Mises and Hayek believes this because of their own personal experience with the matter. But the proposition is easily revealed as false" entail something about the truth value of those views? Yes, the term FALSE kinda has something a little to do with truth. “ More dishonesty. He makes it seem as if their deriving their theory from personal experience was the premise from which I inferred that it is false. However, once again, my argument is contained in the sentence following the one that pro quoted. http://mises.org... http://wiki.mises.org... http://books.google.com... (1019) http://mises.org...