ECON104: Principles of Austrian Economics II

For many years, economists have pondered the causes of business cycles and how to deal with them. For example, Keynesian economists believe that recessions are a symptom of a lack of aggregate demand, and it is the government's prerogative to stimulate aggregate demand through spending, consumption, investment, and exports. In contrast to the Keynesian view, which emphasizes the importance of periods of recession, the Austrian view is that the expansionary period of the business cycle is the beginning of the business cycle. In this lecture, Saifedean looks at the different stages of production and how malinvestment can lead to a boom, overconsumption, unsustainable growth, and disturbances in the labor market.

Topics covered include:

• The issuance of fiduciary credit
• The concept of the intertemporal structure of production
• The relationship between an individual's time preference and their propensity to invest
• The economic principle that involves deferring immediate consumption to foster greater production

Key points:

• There is a trade-off between consumption and investment
• Saving through deferred consumption increases early-stage production
• Overconsumption and overinvestment is unsustainable and inevitably leads to a bust
• An increase in fiduciary media leads to overconsumption, overinvestment, and malinvestment