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
:Emerald Group Publishing Limited
Copyright © 2015 Emerald Group Publishing Limited