The Austrian Theory of the Business Cycle

Interest rates are prices that coordinate the behavior of savers and borrowers across time, reflecting people’s desires to buy things now versus later.

Steven Horwitz

Steven Horwitz is Economics Editor at Lib​er​tar​i​an​ism​.org and Distinguished Professor of Free Enterprise at Ball State University. Horwitz has written extensively on Austrian economics, Hayekian political economy, monetary theory and history, and macroeconomics.

Summary:

Interest rates are prices that coordinate the behavior of savers and borrowers across time, reflecting people’s desires to buy things now versus later. Entrepreneurs depend on interest rates to project which type of projects will be profitable for them to undertake. When these signals are disrupted by a central bank’s artificial expansion of credit, the result is a boom-​bust cycle in the economy.