Is ‘Malinvestment ’ Enough to Go Bust?

After a short discussion of Mises ’ view on money, which sheds light on a purely statistical version of the business cycle, the article focuses on how the introduction of fiduciary money affects economic behaviour within the Austrian context. In particular, it is emphasised that the early-Austrian boom is actually a situation where production is not rising. It turns into a crash when fiduciary money is rejected and reverse seigniorage goes off. However, and in partial contrast with the original theory, it is also shown that the crisis hits the banking system, rather than the producers. If so, it follows that when fiduciary money is no longer accepted as a means of payment, the business cycle leads to redistribution, rather than to a dramatic fall in production. Furthermore, since within the Austrian context consumers are induced to anticipate consumption, crisis is not ignited by inflationary panic, but by the fact that after a while consumers become aware of the inconsistency of their inter-temporal choice. At that moment, the conditions that allowed production to expand are no longer sustainable. The consequences of this change are then examined in detail and become the core of the Austrian end of the boom. The final sections of the paper formulate an extended version of the Austrian business cycle and draw some conclusions as regards both the dynamics of recession and selected policy issues