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Monetary Disequilibrium Theory and Business Cycles: An Austrian Critique

Monetary disequilibrium theory has some common ground with Austrian economics, but there is substantial disagreement regarding the analysis of business cycles. While monetary disequilibrium theory does include some consideration of the market process so important in Austrian theory, at its core lies a view of equilibrium as essentially a static state. This incorrect definition has led to an inadequate explanation of the business cycle in the monetary disequilibrium tradition. The Austrian theory of the business cycle examines business cycles from within the context of the entire economic process and thus, far from being overly specific, is the only theory that provides a complete explanation of that phenomenon. Kenneth Zahringer (kaz998@mail.missouri.edu) is a Graduate Fellow at the Department of Agricultural and Applied Economics, University of Missouri. An earlier version of this paper was presented at the Austrian Student Scholars Conference and the Austrian Scholars Conference. The author would like to thank Joseph Salerno, Peter Klein, Robert Murphy, Timothy Terrell, Per Bylund, Alex Magnier, and an anonymous referee for very helpful conversations and suggestions. All remaining shortcomings are the author’s own. This material is based upon work supported by the National Institute of Food and Agriculture, U.S. Department of Agriculture, under Agreement No. 2008-38420-18747. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author and do not necessarily reflect the views of the U.S. Department of Agriculture. Vol. 15 | N 3 | 304–330 FAll 2012 The