hayek_mises

Understanding The Business Cycle

EC460 — with Robert P. Murphy

Dates: March 2, 2005 -
Status: Closed

Weekly Topics:

  • About Austrian Economics & Overview of the Austrian Business Cycle Theory
  • Time Preference, Interest, and Capital
  • Money
  • Banking
  • Savings-Supported Economic Growth
  • The Circulation Credit Theory of the Business Cycle
  • Other Business Cycle Theories
  • Diagrammatic Expositions
  • Historical Applications

Lectures:

Each Monday of the course there will be a pre-scheduled whole-class lecture session in which Professor Murphy introduces and summarizes the topic of the week. These lectures will generally be scheduled for 7pm EDT, to accommodate as many time zones and work schedules as possible. Students can attend a lecture session at its scheduled time by visiting a special web site. The lecture sessions will consist of Professor Murphy addressing the students via video broadcast along with visual displays (slideshows, “screencasts”, etc). Student participants can use the live chat feature to ask questions which Professor Murphy will address as time and the flow of the lecture permits. Also after the lecture, Professor Murphy will continue to answer questions. The lecture video and chat transcript of the lecture session will be recorded for any students who happened to miss participating in it.

Reading:

A full hyper-linked syllabus with readings for each weekly topic will be available for all students.

Discussions:

At the beginning of every week, 3 discussion topics will open up to the students in an online in-class forum:

  • Lecture Discussion: Topics for these discussions will be drawn from the lecture of the week. Since the lectures will be at the beginnings of the weeks, students are encouraged to dive into these topics right away.
  • Reading Discussion: Topics for these discussions will be drawn from the reading for the week. These are meant to be more difficult and in-depth than the lecture discussions, so students are encouraged to be more careful and rigorous with their posts in them, since they’ll have readings to draw from. Students are encouraged to gradually increase their participation in these topics throughout the week, as they get progressively more reading completed.
  • Extra Credit Discussion: These alternate between somewhat lighter/fun topics, like analyzing the Keynes/Hayek rap video, and extra-challenging topics that may involve additional research.

The class will be divided into discussion groups of 18-22 people (group A, group B, etc). Professor Murphy will particularly be able to participate in Lecture Discussions on Tuesdays and Reading Discussions on Thursdays. Excellent posts will be featured in Professor Murphy’s lectures and/or on the Mises Blog. High quality posters will also have the opportunity to address the whole class during lecture sessions.

Essays:

Excepting the final week of class, there will be a 1- to 2-page essay assignment every two weeks. Halfway through each two-week period, Professor Murphy will give feedback for drafts of these essays.

Quizzes:

Every Friday there will be a multiple-choice quiz. The quizzes will be made available to take at 12:00 am every Friday, and then remain open the entire weekend until 11:59pm Sunday.

Final Exam:

The final exam will consist of both essay and multiple-choice questions.

Final Grade, Transcript, and Certificate of Completion:

The final grade will depend on participation (in both lecture and discussion sessions), essays, quizzes, and the final exam. Students will have access to a digital transcript for the course. We will add any future grades for future Mises Academy courses taken to this transcript. Students will also receive a digital, printable Certificate of Completion.

At this time the Mises Academy does not offer transferable credits, certifications, or degrees.

Dr. Robert P. Murphy teaching an online course

Course Syllabus

12 April – 18 April

About Austrian Economics & Overview of the Austrian Business Cycle Theory

Lecture Discussion:

What do you think is the most distinctive element or aspect of the Austrian school of economics?

Reading Discussion:

What is the Austrian Business Cycle Theory in a nutshell?

Extra Credit Discussion:

“That’s the thrust of my theory…”

“Why Austrian Economics Matters” by Lew Rockwell
“Mises and the Foundation of Austrian Economics” Hülsmann, Mises University (2003) (audio)
“Introduction” Taylor, An Introduction to Austrian Economics
“Introduction” Taylor, An Introduction to Austrian Economics (audio)
“Introduction: Stayin’ Alive”, Callahan, Economics for Real People
Austrian Business Cycle Theory: A Brief Explanation
“Inflation and the Business Trade Cycle” Taylor, An Introduction to Austrian Economics, chapter 8
“Inflation and the Business Trade Cycle” Taylor, An Introduction to Austrian Economics, chapter 8 (audio)
“Times Are Hard: On the Causes of the Business Cycle” Callahan, Economics for Real People, chapter 13 (Google Books)
“Appendix A: A Brief History of the Austrian School” Callahan, Economics for Real People
Fear the Boom and Bust (Video)

19 April – 23 April

Time Preference, Interest, and Capital

Lecture Discussion:

The Naive Productivity Theory of Interest

Reading Discussion:

How are capital and interest fundamentally connected?

Extra Credit Discussion:

Interest Rate Fallacy Scavenger Hunt

“Capital” Murphy, Mises University (2004, session 1) (audio)
“Make a New Plan, Stan: On the Place of Capital in the Economy” Callahan, Economics for Real People, chapter 8
“The Foundations of Capital Theory”; de Soto; Money, Bank Credit, and Economic Cycles, p. 266-305 (PDF document)
“Why Do Capitalists Earn Interest Income?” by Robert P. Murphy
“The Abstinence Theory of Interest” by Robert P. Murphy
Böhm-Bawerk’s Critique of the Exploitation Theory of Interest by Robert P. Murphy
The Importance of Capital Theory by Robert P. Murphy

24 April – 2 May

Course Recess

(no assignments)

3 May – 9 May

Money

Lecture Discussion:

On Mises’ Regression Theorem

Reading Discussion:

On the Quantity Theory of Money

Extra Credit Discussion:

The Root of All Evil?

What is Money – Part One by Robert LeFevre
The Origin of Money and Its Value by Robert P. Murphy
“Money in a Free Society” “Government Meddlng With Money,” thru part 6 Rothbard, What Has Government Done to Our Money?, sections II and III (thru part 6)
“Money Changes Everything: On Indirect Exchange and Economic Calculation” Callahan, Economics for Real People, chapter 5
“What Goes Up, Must Come Down: On the Effect of Fluctuations in the Money Supply” Callahan, Economics for Real People, chapter 9
“The Assault on Saving” Hazlitt, Economics in One Lesson, chapter XXIV

10 May – 16 May

Banking

Lecture Discussion:

How is it that all modern banks are inherently insolvent?

Reading Discussion:

How does the Federal Reserve lower the market rate of interest?

Extra Credit Discussion:

“You’re thinking of this place all wrong, as if I had the money back in the safe…”

“The Fed as Giant Counterfeiter” by Robert P. Murphy
The Mystery of Central Banking
“Banking and the Business Cycle,” Rothbard, classroom lecture (audio)
“Permitting Banks to Refuse Payment” “Central Banking: Removing the Checks on Inflation” “Central Banking: Directing the Inflation” Rothbard, What Has Government Done to Our Money?, section III, parts 7-9
Bank Run Scene from “It’s a Wonderful Life”

17 May – 23 May

Savings-Supported Economic Growth

Lecture Discussion:

How do savings beget a virtuous cycle?

Reading Discussion:

What kind of legal framework allows for capital accumulation?

Extra Credit Discussion:

How does “The Paradox of Thrift” misconceive the effects of saving?

“The Effect on the Productive Structure of an Increase in Credit Financed Under a Prior Increase in Voluntary Saving”; de Soto; Money, Bank Credit, and Economic Cycles p. 313-346 (PDF document)
“Why No Crisis Erupts When New Investment is Financed by Real Saving (and Not by Credit Expansion)”; de Soto; Money, Bank Credit, and Economic Cycles p. 397-399 (PDF document)
“Nothing Paradoxical About Thrift” by Robert P. Murphy

24 May – 30 May

The Circulation Credit Theory of the Business Cycle

Lecture Discussion:

Distinctively Austrian
Reading Discussion: How does the Austrian Theory of the Business Cycle account for housing (and other durable goods) bubbles?
Extra Credit Discussion: Make your own analogy for the business cycle!

Lecture Discussion:

Why can’t a boom induced by credit-expansion be perpetual?

Reading Discussion:

How do Paul Krugman and Tyler Cowen misconceive the Austrian Theory of the Business Cycle?

Extra Credit Discussion:

What is “forced savings” and does it play any significant role in the business cycle?

“The Effects of Bank Credit Expansion Unbacked by an Increase in Saving: The Austrian Theory or Circulation Credit Theory of the Business Cycle”; de Soto; Money, Bank Credit, and Economic Cycles p. 347-395 (PDF document)
Mises et al., The Austrian Theory of the Trade Cycle and Other Essays
“Additional Considerations on the Theory of the Business Cycle”; de Soto; Money, Bank Credit, and Economic Cycles; p. 397-468 (PDF document)

31 May – 6 June

Other Business Cycle Theories

Lecture Discussion:

How does the Keynesian analysis of the business cycle contrast with the ABCT?

Reading Discussion:

How does the Monetarist analysis of the business cycle contrast with the ABCT?

Extra Credit Discussion:

“Naw, it’s the animal spirits”

Misconceptions about Austrian Business Cycle Theory: A Comment (PDF document)
The Austrian Theory of the Business Cycle in the Light of Modern Macroeconomics (PDF document)
Written Assignment 1
Austrian Business Cycle Theory in Light of Rational Expectations: (PDF document)
“Marx, Hayek, and the View that Economic Crises are Intrinsic to Market Economies”; de Soto; Money, Bank Credit, and Economic Cycles p. 468-474 (PDF document)
“A Critique of Monetarism”; de Soto; Money, Bank Credit, and Economic Cycles p. 512-535 (PDF document)
“Criticism of Keynesian Economics”; de Soto; Money, Bank Credit, and Economic Cycles p. 542-571 (PDF document)
(Optional Reading) “Austrian Cycle Theory: Saving the Wheat while Discarding the Chaff” by Richard E. Wagner (PDF document)

7 June – 13 June

Diagrammatic Expositions

Lecture Discussion:

Hayekian Triangles

Reading Discussion:

Triangles or Thresholds?

Extra Credit Discussion:

Can you think of any other diagrammatical ways to model the ABCT?

“Hayekian Triangles and Beyond”; Roger Garrison (1994)
“Capital-Based Macroeconomics”; Garrison; (Slideshow)
Sustainable and Unsustainable Growth | Keynes and Hayek: Head to Head (Slideshow) by Roger Garrison
“On Hayekian Triangles” by Walter Block and William Barnett (PDF document)

14 June – 18 June

Historical Applications

Lecture Discussion:

How does the ABCT explain the current economic crisis? What might it say about the future?

Reading Discussion:

A textbook case?

Extra Credit Discussion:

Open Goodbye Discussion

“Empirical Evidence for the Theory of the Cycle”; de Soto; Money, Bank Credit, and Economic Cycles p. 476-503 (PDF document)
“Tulipmania”, “The Mississippi Bubble”, “The South Sea Bubble”; French; Early Speculative Bubbles and Increases in the Supply of Money; Chs. 2, 6, & 7 (PDF document)
“The Great Depression, World War II, and American Prosperity, Part I” Woods, The Truth About American History, lecture 5 (2005) (audio)
Evidence the Fed Caused the Housing Boom by Robert P. Murphy
“The Worst Recession in 25 years?”; Murphy
(Optional Reading) “Does Austrian Business Cycle Theory Help Explain the Dot-Com Boom and Bust?” by Roger W. Garrison and Gene Callahan

Course Readings, Discussions and Assignments

Operating System
Windows 98 or higher
Mac OS 10.1 or higher
Linux

Connection
56k V.90 modem or higher

Browser
Firefox 3.0 or higher is recommended for both Mac and PC.
Free download: http://www.mozilla.com/firefox
Opera and Safari will not show built-in html editor in Moodle.
Internet Explorer can potentially cause errors.

Refund Policy

If you drop the course during its first week (7 calendar days), you will receive a full refund.
If you drop the course during its second week, you will receive a half refund.
No refunds will be granted following the second week.

Books Available at the Mises Store

Several excerpts from the following books are assigned readings in this course. (Note: Purchasing these books is NOT required. All readings in this course are available online for free.)

While the following books are not assigned, they would be excellent background reading for this course.