The Austrian Theory of the Business Cycle

I will address the questions reviewers will be asked in voting. 1.Who did you agree with before the debate? Please vote accurately. 2.Who did you agree with after the debate? The validity of the argument and sources alone should determine your final position. Con's poor spelling and Pro's lack of following the format are irrelevant here. 3.Who had better conduct? I posted one of my arguments in the comments area due to a technical issue. Yes, it was longer than the allotted characters. I had a version that was <8k chars sent to the help line (requiring <8k chars). Spawktalk was asked to restart the debate so that the appropriate response could be posted. He declined to do so, preventing my <8k response from being evaluated. Either could have stopped this issue. In the comments soon after my deadline ended and more than 36 hours prior to Spawktalk's submission time, 16kadams, said I could have done some sort of force quit and reposted and that Spawktalk could re-start the debate. It was too late for me to repost. Choosing to have the debate remain in error is poorer conduct than inadvertently doing so. I encourage you to vote Pro because of this. 4.Who had better spelling and grammar? Here's a small collection of errors from Spawktalk: "paradise wont last" should have an apostrophe; "will set in in the form" has a duplicated ‘in'; "always at at, or" has a duplicated ‘at'; "united states" should be capitalized; "mises's" should be capitalized and twice he did this, perhaps in an effort to undermine Mises' credibility? Also, there shouldn't be an ‘s' after the apostrophe; "opponents has" should be ‘opponent has.' This was a small sample of Con's large number of spelling and grammar errors, far more exist, whilst you would be hard pressed to find any within the Pro's arguments. This requires a vote for Pro. 5.Who made more convincing arguments? Here's the argument in brief: Pro's P1 - ABCT states that a bust is because "panic will set in" This was proven false using sources [1, 2, 3, 4] that show no reference whatsoever to any sort of panic countered by overlapping references with only 1 reference to panic. Pro's P2 - ABCT assumes "liquidity preferences must be in good condition" I did address this. See below. Pro's P3 - ABCT assumes "[added] credit will primarily be spent on production goods" This was clearly addressed by me, please see my first response. Pro's C1 – "this theory has limited applications" Considering that all Con's propositions have been negated, the conclusion cannot be supported, therefore, vote Pro. 6.Who used the most reliable sources? Please count the resources used, striking circular references and duplicates and marking down for references to Wikipedia a consistently unreliable source. I supplied 2x as many reliable resources. Vote Pro. Con writes, "These two sentences contradict each other" about, "using any method other than what the market dictates" and "I wrote nothing about how" which are not contradictory. The method could be throwing darts, picking a number, or personal. The HOW is irrelevant, it is only that the rate is not the market rate. Con writes, "[it is false that] a non natural interest rate is arbitrary because it is undetermined," in response to what I wrote which was, "anything other than the natural supply and demand determined rate is arbitrary" and Con follows with, "It is determined by the supply and demand for loans," which is almost exactly what I wrote! He doesn't disagree here; he simply misunderstands what I said. Con writes, "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." This does not bolster his earlier response which brought up FRB as a counterpoint when FRB was never used as a point by me. Yes, it is relevant, but he falsely suggested that I brought up the concept. Con suggests that his sources indicate that fear of hyperinflation is a crucial element to the ABCT. #1 is a discussion of #4, and cannot be considered a separate unique source. #2 is a wiki that references the other source that Con previously cited. #3 discusses a panic after prefacing, "with the establishment of fiat money... [causing] the phenomenon of runaway inflation." Addressing arbitrary manipulations is how the ABCT plays out, not a crucial part of the theory. None of the sources provided suggest that a panic is a key part of the theory. Con writes, "...there were 17 paragraphs in the essay" in response to my statement, "It was one paragraph out of... many." The last paragraph of the essay says, "...I have given only a brief and necessarily insufficient sketch of the monetary theory… find more in the various publications I have mentioned." Including Mises' referenced articles, the paragraph in question IS one amongst VERY many; and none of the others mention a panic. [5] Con needles, "...Mises... Gordon Tullock and Murray Rothbard understand the theory better than my opponent," yet 1 paragraph of his sources posit the position he asserts and all of mine express the theory without. I have proven that Con is incorrect in suggesting that a panic is a key component of the ABCT. People's saving habits do decrease with higher inflation. Davidson and MacKinnon discuss it as an understood fact, "the observed positive relationship between inflation rates and savings rates in Canada and the United States." [6] See page 12 of their paper for sources which support the known relationship. Inter-Relationship between Economic Growth, Savings and Inflation in Asia finds, "The relationship between savings rate and growth has been found to be bi-directional and positive." [7] Con writes that I didn't answer him, "Why can not consumers [use] the same cheap credit expansion in order to consume? (IE credit cards)." By placing this question with several others, it confused the matter so I responded as if it were related. I already addressed it in the previous post when I wrote, "additional credit to offer will accommodate higher risks and/or longer terms," meaning, yes, they will. His question doesn't argue the point; it makes it so I appropriately pointed out that buying means not saving. Con writes, "increase in general savings tells... nothing about future demand for [one] product," which is a poor understanding of demand. Other factors equal, more money for buying things means demand for a product will increase. Rising TV views likely means more views of all shows. Con says "I must explain WHY [artificially low rates] cause a miscalculation [of demand]." Low interest rates are (if not artificial) a sign of high amounts of deferred consumption (a high supply of savings available to be borrowed). If the rates are artificial the signal is wrong and the calculation is wrong. Con stated ABCT doesn't account for LP, that they "must be in good condition," "for credit to be loaned out." The fact is, that Con didn't specify what he means by "liquidity preferences." It appears that he's talking about whether a bank is amenable to lending or not, similar to Con's previous point about arbitrary interest rates. I addressed this previously; the ABCT doesn't assume that the "Government [would void] contract law... forcibly [confiscate] property" and more. The ABCT does, predict the result of such manipulation showing that artificially high interest rates will lead to increased savings, which is what the bank is doing, saving money. 1.http://mises.org... 2.http://blog.mises.org... 3.http://www.youtube.com... 4.http://econfaculty.gmu.edu... 5.http://mises.org... 6.http://www.tandfonline.com... 7.http://papers.ssrn.com...;