A Study On The Austrian School Theory Of Business Cycle

The Austrian School business cycle theory, is such a kind that combines monetarytheory with entrepreneurial spirit and " Roundabout production". Different from some ofthe business cycle theories which can only explain some certain stages of the cycle, theAustrian School business cycle theory is a complete process including how prosperitycomes into reality and how prosperity turn into depression, which can be seen to be a moremature and perfect interpretation theory.Currency factors is very important in the Austrian School business cycle theory.According to the Austrian School economists, there are two main ways cause the changethe money supply. One is the voluntary money saving, as it is their own choice of people,so it will mislead production and consumption; Another way is the central bank’sintervention, in the view of the Austrian School, the central bank’s intervention makes themarket interest rate diverse form the natural rate, so entrepreneur is easy to be misled tomake improper investment, which can make the production structure artificially distorted.In the theory of Austrian school, no total or average index in the economic operationcan accurately reflect the individual behavior of the market accurately, so what they caremore about is how the price of some goods change according to the change of other goods’prices. They believe the change of the money supply is the fundamental cause, and hope toexplain how currency will affect the relative prices.In the Austrian School’s view, even regulating the money supply to keep the generalprice level stability is possible, but it is not possible not to affect the relative prices ofgoods nor to mislead the production, and the change of the money supply will not affect allpeople equally. At the same time, there are always some people benefit from it while theothers unconsciously been hurt. Therefore, currency and interest rate should not beartificially manipulated. A person’s value judgment should not be replaced by others’, thefulfillment of true needs is the most important thing to everyone.In the Austrian School business cycle theory, entrepreneur is an important concept. Both the emergence of economic prosperity, and the economic crisis and depression, areinseparable from the entrepreneur’s participation. Fluctuations become more frequent andobvious because of entrepreneurs’ participation. So, if we want to understand exactly theAustrian School business cycle theory, we cannot ignore this concept."Roundabout production" is another important concept of the Austrian Schoolbusiness cycle theory. It is put forward by Bohm-Bawerk in the end of the19th century,and later be complemented by Ludwig von Mises and Hayek."Roundabout production" arenot paid enough attention by other economics, so deep understanding of this concept, is ofgreat significance to accurately grasp the Austrian School business cycle theory.About treating measures for depression and crisis, the Austrian School had their ownunderstanding. Although the government and the public hope prosperity can last forever,but the distortion caused by human factors on the market must be corrected. According tothe Austrian School, depression and recovery is a must, and although depression is notwhat the public wants to experience, it should not be interrupted, because the result of theintervention, will be the same with what happened in the prosperous period, causing thedistortion of market information. It slows down the process of recovery. Even ifintervention can temporarily extend the prosperity, depression will sooner or later arrive,but which is worse is that eventually it will only make the depression lasts longer andcause more severe damage.All in all, absorbed the essence of the Austrian School’s unique thought, the AustrianSchool business cycle theory has repeatedly shown their charm. We believe that in thefuture and in the study of the business cycle theory, it will continue to prove its importantvalue.