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The Austrian theory of the business cycle (ATBC) was developed by economists from the Vienna school, including F.A. Hayek and L.V. Mises. It explains the relationship between bank credit, economic growth and massive investment errors that was accumulated in the bullish phase of the cycle, bursting with the bubble and destroying value.

It argues that a expansión “;artificial”; of the credit, i.e., not supported by previous voluntary savings, tends to increase investment, since relative prices have been distorted by the greater mass of money circulating in the economy. These investments, that had not been undertaken without the aforementioned distortion, overuse accumulated capital goods, and sooner or later the artificially low interest rates are arranged in their true level of market, usually very Continue reading “Austrian business cycle theory”