Abstract

Austrian business cycle theory is a body of hypotheses embodying particularly Austrian insights and assumptions. The canonical variant associated with Ludwig von Mises and Friedrich A. Hayek is particularly well suited to the Great Depression. However, it is an inadequate account of the recent US recession and financial crisis. This chapter develops a suitable ABCT variant that explicitly incorporates not only the economy’s time structure of production but also its structure of consumption and its risk structure. The continuous input–continuous output nature of the housing market is highlighted, along with the Treasury and the Federal Reserve’s roles in externalizing the risk associated with government-sponsored entities’ debt. The chapter then extends Roger Garrison’s graphical framework to illustrate this ABCT variant.