Who Were the Sea Peoples?

(Part three of an examination of Garrison's business-cycle  theory as an over-investment theory: part two is here .) It is true that lowering of the interest rate will raise the net present value of a long-term investment by more than it will reduce the net present value of a short-term investment. However, this does not mean that a lowering of the interest-rate will make it more likely that I will undertake a new long-term investment the new short-term investment. The fact is, what I will look at is the yield on my Investment versus my cost of borrowing to finance the investment. If the investment returns 5%, the interest rate was 6%, and it is been lowered to 4%, the investment now looks profitable to me, whether the investment is a one-year investment or 30 year investment. Thus, what we will see is more investment projects being undertaken, whatever the length of the project. (And of course, less saving.) But doesn't the greater increase in the net present value of a l...

I suggested here that Roger Garrison's business cycle theory should be disentangled from its Hayekian-triangle encrustations and show itself as a theory of how low interest rates can produce temporary movements beyond the PPF (where the PPF is understood to represent sustainable combinations of investment and consumption production). What that would do would be to free the theory up from its (I think) unnecessary ties to the shaky notion of a "lengthening structure of production." Long before the Cambridge capital controversy highlighted the reswitching problem, no less an esteemed Austrian than Mises had declared, "The 'average period of production' is an empty concept" ( Human Action , p. 522). So if we eliminate that feature and rely instead on Garrison's idea of movements beyond the PPF, is there something distinctively "Austrian" left in the theory? I think so: it is the notion of a capital structure . We must take that into accou...

In my continually rethinking of cycle issues, I have come to the conclusion that Roger Garrison's cycle theory ought to liberate itself from its Hayekian triangles and stand on its own as a theory of a temporary movement beyond the production possibilities frontier. Garrison defines his PPF as a sustainable combination of output. How can we move beyond that? A story as simple as this will do: Let's say we own a factory that produces some investment good. Our normal schedule is to run the machines in the factory 20 hours per day, allowing four huors for them to cool down and to be repaired. But the good we produce becomes in great demand for some consumption good it is used to produce. We could invest in more machines, but instead we decide to "make hay while the sun shines": we run our machines 24 hours a day, with no maintenance or cool down periods. For some time, the production of both investment and consumption goods may rise. That is the "boom." Bu...