Hayeks Contribution to the Business Cycle

Hayeks Contribution to the Business Cycle

Friedirch August von Hayek was born in Vienna on May 8, 1899 and died on March 23, 1992, in the city of Freiburg in Breisgan in Germany. Hayek was a central figure in 20th-century economics and he represented the Austrian tradition. After Hayek served military service, he became a student at the University of Vienna where he got his doctorate in law and political science. In 1923-4, Hayek visited New York and then returned to Vienna where he continued his work. Hayek became the first director of the Austrian Institute for Business Cycle Research in 1927. He also gave some lectures in England at the London School of Economics in 1931. In England, he participated in such debates as monetary, capital, and business-cycle theories during the 1930s. Hayeks' contributions were very important.

To describe, business cycles, one has to examine the historical record of a nation's overall economic performance. "It is a pattern of long-term growth marked by alternations of expansion and contradiction. These recurrent alternations above and below the long-term trend are business cycles" (Outhwaite, 55). The term "economic fluctuations" is used to describe the same phenomena. Economists have distinguished many cause of the business cycle. There are some factors outside the economic system and those within it. Outside causes such as war and major inventions are referred to exogenous factors. Whereas "endogenous factors belong to the internal working of the economy itself and its tendency to fluctuate over extended periods" (Outhwaite, 56). Before World War II, the emphasis was put on endogenous factors, and thus theories such as monetary; overinvestment; underconsumption; psychological were more important than others. In general, all cycle theories involve some kind of cost maladjustment.

F. A. Hayek was one of the many economists who, indeed, explained overinvestment theory in a monetary sense. Overinvestment theory is related to the overproduction-type theories. Those theories include consumer goods, capital goods, or investment of money or credit. "They may stress fixed capital against circulating or liquid capital" (Haney, 667). However, the overinvestment theory assigned a crucial role to the acceleration principle, according to which "a mere decline in the rate of increase in business sales could gi...

... middle of paper ...

...

Butler, Eamonn. Hayek: His Contribution to the Political and Economic Thought of Our

Time. USA: Universe Books, 1985. 8-10.

Colonna, M., Hagemann, H., and Hamouda, O. Economics of F.A. Hayek. (Vol.2, pp xii- xiii). Edward Eglar Publishing Limited. England. 1994.

Haney, Lewis H. History of Economic Thought. New York: The Macmillan Company,

1949. 667-84.

O'Driscoll, Gerald P., Jr. Economics as a Coordination Problem: The Contributions of

Friedrich A. Hayek. Kansas City: Sheed Andrews and Mcmeel, Inc. 1977. 9-11.

Outhwaite, William and Tom Bottomore. The Blackwell Dictionary of Twentieth-

Century Social Thought. Oxford: Blackwell Publishers, 1993. 55-57.

Palgrave, Robert Harry Inglis. "Friedrich August von Hayek". The New Palgrave: A

Dictionary of Economics. (Vol. 2, pp. 609-10). The Macmillan Press Limited. USA. C 1987.

Palgrave, Robert Harry Inglis. "Ricardo-Hayek effect". The New Palgrave: A

Dictionary of Economics. (Vol. 4, pp. 198-99). The Macmillan Press Limited. USA. C 1987.

Spiegel, Henry. The Growth of Economic Thought. New Jersey: Prentice-Hall, Inc.,

1971. 543-44.

Tomlinson, Jim. Hayek and the Market. London: Pluto Press. 1990. 5-6.