Editing Business cycle (section)

=== Austrian School ===
{{main|Austrian business cycle theory}}
Economists of the heterodox [[Austrian School]] argue that business cycles are caused by excessive issuance of credit by banks in [[fractional reserve banking]] systems. According to Austrian economists, excessive issuance of bank credit may be exacerbated if [[central bank]] monetary policy sets interest rates too low, and the resulting expansion of the money supply causes a "boom" in which resources are misallocated or [[malinvestment|"malinvested"]] because of artificially low interest rates. Eventually, the boom cannot be sustained and is followed by a "bust" in which the malinvestments are liquidated (sold for less than their original cost) and the money supply contracts.<ref>{{cite web|last1=Block|first1=Walter|last2=Garschina|first2=Kenneth|title=Hayek, Business Cycles and Fractional Reserve Banking: Continuing the De-Homogenization Process|url=https://mises.org/journals/rae/pdf/rae9_1_3.pdf|website=mises.org|date=20 July 2005 |publisher=Ludwig von Mises Institute|access-date=28 July 2014|url-status=live|archive-url=https://web.archive.org/web/20130910205248/http://mises.org/journals/rae/pdf/RAE9_1_3.pdf|archive-date=10 September 2013}}</ref><ref>{{cite web|last1=Shostak|first1=Dr. Frank|title=Fractional Reserve banking and boom-bust cycles|url=https://mises.org/journals/scholar/shostak2.pdf|website=mises.org|publisher=Ludwig von Mises Institute|access-date=28 July 2014|url-status=live|archive-url=https://web.archive.org/web/20120714030329/http://mises.org/journals/scholar/shostak2.pdf|archive-date=14 July 2012}}</ref>

One of the criticisms of the [[Austrian business cycle theory#Criticisms|Austrian business cycle theory]] is based on the observation that the [[United States]] suffered recurrent economic crises in the 19th century, notably the [[Panic of 1873]], which occurred prior to the establishment of a U.S. central bank in 1913. Adherents of the Austrian School, such as the historian [[Thomas Woods]], argue that these earlier financial crises were prompted by government and bankers' efforts to expand credit despite restraints imposed by the prevailing gold standard, and are thus consistent with [[Austrian Business Cycle Theory]].<ref>{{cite web|last1=Woods|first1=Thomas Jr.|title=Can We Live Without the Fed?|url=http://archive.lewrockwell.com/woods/woods219.html|website=lewrockwell.com|publisher=Lew Rockwell|access-date=27 July 2014|url-status=live|archive-url=https://web.archive.org/web/20140313212821/http://archive.lewrockwell.com/woods/woods219.html|archive-date=13 March 2014}}</ref><ref>{{cite web|last1=Woods|first1=Thomas Jr.|title=Economic Cycles Before the Fed|url=https://www.youtube.com/watch?v=TxcjT8T3EGU|website=youtube.com|date=26 August 2011 |publisher=Mises Media|access-date=27 July 2014|url-status=live|archive-url=https://web.archive.org/web/20140912194610/http://www.youtube.com/watch?v=TxcjT8T3EGU|archive-date=12 September 2014}}</ref>

The Austrian explanation of the business cycle differs significantly from the [[mainstream economics|mainstream]] understanding of business cycles and is generally rejected by mainstream economists. Mainstream economists generally do not support Austrian school explanations for business cycles, on both theoretical as well as real-world empirical grounds.<ref>Friedman, Milton. "The Monetary Studies of the National Bureau, 44th Annual Report". The Optimal Quantity of Money and Other Essays. Chicago: Aldine. pp. 261–284.</ref><ref>Friedman, Milton. "The 'Plucking Model' of Business Fluctuations Revisited". Economic Inquiry: 171–177.</ref><ref name="springerlink.com">{{cite journal | last1 = Keeler | first1 = JP.  | s2cid = 18902379 | year = 2001 | title = Empirical Evidence on the Austrian Business Cycle Theory | journal = Review of Austrian Economics | volume = 14 | issue =4 | pages = 331–51|doi=10.1023/A:1011937230775 }}</ref><ref>Interview in Barron's Magazine, Aug. 24, 1998 archived at Hoover Institution {{cite web |url=http://www.hoover.org/publications/hoover-digest/article/6459 |title=Mr. Market &#124; Hoover Institution |access-date=2015-09-28 |url-status=dead |archive-url=https://web.archive.org/web/20131231213357/http://www.hoover.org/publications/hoover-digest/article/6459 |archive-date=2013-12-31 }}</ref><ref name="Kaldor1942">{{cite journal | author=Nicholas Kaldor| title=Professor Hayek and the Concertina-Effect| journal=Economica| volume=9 | issue=36 | year=1942 | pages=359–382 | jstor=2550326 | doi=10.2307/2550326 }}</ref><ref name="Garrison">R. W. Garrison, [http://www.auburn.edu/~garriro/amagi.htm "F. A. Hayek as 'Mr. Fluctooations:' In Defense of Hayek's 'Technical Economics'"] {{webarchive|url=https://web.archive.org/web/20110808141645/http://www.auburn.edu/~garriro/amagi.htm |date=2011-08-08 }}, ''Hayek Society Journal'' (LSE), '''5'''(2), 1 (2003).</ref> Austrians claim that the boom-and-bust business cycle is caused by government intervention into the economy, and that the cycle would be comparatively rare and mild without central government interference.