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AUSTRIAN BUSINESS CYCLE THEORIES IN THE REVIEWS OF THE FEDERAL RESERVE SYSTEM

By Greg Kaza

Abstract

References to the works of economists and economic schools of thought are a relatively recent development in texts of reviews 1 published by Federal Reserve System member banks. Text references in reviews were rare in the central bank’s first half-century (1914–1964) of operation. Explicit references to economists and schools of thought began appearing in the late 1950s and early 1960s. The essays in the late 1960s and early 1970s featured references to Keynes and Milton Friedman (Friedman and Schwartz 1963) on the importance of fiscal versus monetary policy. Outstanding examples were in reviews of New York and St. Louis banks. 2 THE LIMITS OF EVOLUTION: THEORIES OF THE BUSINESS CYCLE The business cycle is a frequently cited topic among references to Austrian economists. There are 11 text references to Austrians in Fed reviews that refer to the business cycle. Austrian business cycle theory (ABCT) identifies the central bank as the cycle’s major actor due to its interference with the market and the natural rate of interest. The failure to consider one ABCT variant—the Misesian theory—illustrates the limits of evolution in Fed reviews. One exception is Formaini (2001, Dallas). The essay does not use the term “malinvestment ” but briefly presents a Schumpeterian view of ABCT

Year: 2012
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