Maybe a new approach to the Austrian Business Cycle Theory, some disorganized thoughts

This approach is loosely based on the guido-hulsmann concept of “cluster of errors” and on general ideas about capital heterogeneity taken from Lachmann.

This new approach solves:

Networks of circles of production

Instead of thinking in triangles1 we can think in networks of circles of variable sizes.

If we imagine there’s a circle which represents one kind of good produced and for some reason there’s an stimulus for the production of that good (for example, a governmental program that uses newly-printed money to subsidize loans for that specifically) that circle will get bigger. In the process of getting bigger it will also make bigger the circles that were already around it, and the biggerness will gradually spread.

That means new investment is being made on each of these industries, malinvestiment. People and resources are migrating from other, more distant circles, to these circles nearer the epicenter of malinvestment.

Representing the cycle that way we’re free to oversimplify as you can just say: the real world is like this, but with many more circles and more complex relationships between them. You can also alternate between considering the circles sectors, industries or individual companies.

No sequential “steps” of production, just plans

Instead of imagining production princesses with discrete sequential steps we should also consider actually just plans.

Entrepreneurs predict there will be demand and predict there well be suppliers with reasonable prices for them to complete a plan. The plan can be arbitrarily divided into production and sale of a good, but actually often these parts are not so simply detached from each other.

In the network of circles the plan can be visualized as one circle looking around and seeing the other circles and estimating their future behavior.

The boom stops and the bust happens when the predictions fail. They fail because the unsustainable stimulus that was causing some of the circles to increase continuously stops.

  1. Hayekian triangles:

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