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Fall 2021

ISSN 0890-913X

Volume 36, Number 3

Hayek’s Theory of Business Cycles: A Theory That Will Remain Obscure?*

Simon Bilo, Arlington, VA

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TheJournalofPrivateEnterprise36(3),2021,27–47Hayek’sTheoryofBusinessCycles:ATheoryThatWillRemainObscure?*SimonBiloArlington,VA______________________________________________________AbstractHayek’stheoryofbusinesscycleshasbeencriticizedforitsunfeasiblepolicyprescriptions,weakempiricalsupport,andlackoftechnicalrigor.Althoughthetheorycanbedefendedagainstthesecriticisms,itviolatestherationalexpectationshypothesis,acriterionbywhicheconomiststendtojudgethequalityofeconomicarguments.SinceHayekandhisfollowersfailedtoremedytheviolation,thetheoryinitspresentformcannotcapturetheinterestoftheeconomicsprofession.Thisoutcomemightbeavoidable.However,tochangeit,Hayek’stheoryeitherneedsasatisfactoryrestatement,oritmustwaituntileconomistschangetheircriteriaforjudgingthequalityofarguments.______________________________________________________JELCodes:B22,E32Keywords:Austrianbusinesscycletheory,rationalexpectationshypothesis,F.A.HayekI.IntroductionHayekpresentedhistheoryofbusinesscyclesintheearly1930swithgreatsuccess,asdocumentedbyKaldor(1942,p.359),Hicks(1967,pp.ix,203),Caldwell(1988,pp.516–17;2004,p.176),andSnowdonandVane(2005,pp.86–87).Thatsuccess,however,fadedbytheearly1940s(Caldwell2004,p.176).ProfessionalinterestinHayek’stheory,alsoknownastheAustrianbusinesscycletheory,hasnot*IthankPeterBoettke,StephenCasler,HarryDavid,RichardEbeling,KevinHoover,RogerKoppl,AdamMartin,GeraldO’Driscoll,ShrutiRajagopalan,MarioRizzo,RichardWagner,LawrenceWhite,participantsoftheColloquiumonMarketInstitutionsandEconomicProcessesatNYU,theDepartmentofEconomicsSeminarLuncheonatAlleghenyCollege,theGraduateStudentPaperWorkshopatGMU,theMonetaryEconomicsResearchCluster(MERC)atGMU,andananonymousrefereeforvaluablecommentsandsuggestionsontheearlierdraftsofthepresentpaper.IgratefullyacknowledgethefinancialhelpthatIreceivedfromtheBradleyFoundation,theCenterfortheHistoryofPoliticalEconomyatDukeUniversity,theEarhartFoundation,theInstituteforHumaneStudies,andtheMercatusCenterwhileworkingonthepaper.Alltheusualcaveatsapply.

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Metadata [hide]

Title	Hayek’s Theory of Business Cycles: A Theory That Will Remain Obscure?*
Authors/Creators:	Simon Bilo, Arlington, VA
Year:	2021
Volume:	36
Number:	3
Pages:	27 - 47
Publisher:	The Association of Private Enterprise Education
ISSN:	0890-913X
Document Type:	Articles
Keywords:	Austrian business cycle theory, rational expectations hypothesis, F. A. Hayek

Citation:
Bilo, Simon / 2021. "Hayek’s Theory of Business Cycles: A Theory That Will Remain Obscure?." The Journal of Private Enterprise*, 36(3): 27-47.