In the Kling article

he says this:

The Bugs of Austrianism

Given that Austrian economics focuses on The Knowledge Problem and Competition as a Discovery Procedure, which of the following would you guess would be a metaphor for an Austrian explanation of booms and busts in business investment?

(A) Imagine a restaurant in which the menu includes some items that can be cooked quickly, using stir-fry and microwave techniques, while other dishes such as stews and roasts require longer and more roundabout cooking methods. In a well-functioning restaurant, the extent to which consumers are hungry now or are willing to wait determines the mix of food that is prepared. The waiters deliver the right information to the chefs about how much of each type of meal to prepare. However, like a bad waiter, a central bank can enter the picture and deceive the chefs into thinking that people want more stews and roasts than they truly desire. This leads to a boom in long-term cooking, followed by a bust later on.

(B) Imagine a restaurant in which the chefs have many new recipes to try. Most of them will not be popular, but some will represent successful gastronomic progress. When the chefs become optimistic, they try many new recipes, which means a boom. When the chefs become risk-averse, there is a slump.



For reasons that baffle me, the Austrians prefer explanation (A). Explanation (B) is closer in spirit to Keynes, the arch-enemy of the Austrians.

My experience both in business and in economics leads me to prefer (B). I have never been in a business situation where a decision boiled down to a choice between two projects with known, predictable rates of return, with one project short-term and the other project long-term. Instead, the typical challenge has been to guess whether a new business idea will be successful or not, given uncertainties about feasibility, marketing, technology risk, and other factors.

Austrian Business Cycle Theory, as I, a layman, understand it, states that Booms and Busts are caused by somebody, generally a central banker but historically private banks have issued bank notes based on fractional reserves also, misinforming entrepreneurs about how much money is available. The cooks are being told to try anything they want and to hell with the cost. Truffles from France? Sure! Borrow some of my cash! Plenty more where that came from.
The trouble is, there's not plenty more. Pretty soon you get inflation, or stagflation or hyperinflation if you don't reign in the printing presses or the credit expansion. When you do reign it in, everybody overreacts and you get a crash. It seems to me that Greenspan did what he was supposed to do in popping the bubble and engineering a soft landing for the economy, but everybody went apeshit anyway.

Monetarism is going to get us this response.

The only answer is to go back to gold.