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Volatility in Catallactical Systems: Austrian Cycle Theory Revisited

New Thinking in Austrian Political Economy

ISBN: 978-1-78560-137-8, eISBN: 978-1-78560-136-1

Publication date: 3 August 2015

Abstract

Traditional Austrian cycle theory starts from general equilibrium and explains how an expansion of bank credit unmatched by an expansion of saving can create a cycle of boom-and-bust, and with the bust followed by restoration of normality. In contrast, this paper offers a non-equilibrium reformulation of those earlier Austrian insights, which expands and refocuses the analytical agenda of macro theory. Our key analytical feature is the conceptualization of a macro economy as constituted through an open-ended ecology of plans. Within this framework, macro variables are not primitives but are derivative from micro-level interaction. In turn, the computation of optimizing actions is beset with undecidability. The theory of entrepreneurial choice that is suitable for this analytical framework is based on rule-following or algorithmic choice and not on computational maximization. What results is a macro ecology, the internal operation of which entails natural volatility. What are called policy actions, moreover, operate inside and not outside the ecology, and can create induce volatility within the ecology.

Keywords

Citation

Caton, J. and Wagner, R.E. (2015), "Volatility in Catallactical Systems: Austrian Cycle Theory Revisited", New Thinking in Austrian Political Economy (Advances in Austrian Economics, Vol. 19), Emerald Group Publishing Limited, Leeds, pp. 95-117. https://doi.org/10.1108/S1529-213420150000019005

Publisher

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Emerald Group Publishing Limited

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