Austrian Business Cycle Theory and Sticky Consumption: Reconciling Hayek, Mises, and Schumpeter

Abstract

Ludwig von Mises considered immediate overconsumption essential to the Austrian Business Cycle Theory (ABCT); Friedrich Hayek never agreed. Examining this disagreement, Roger Garrison concluded that Hayek’s exposition of ABCT (a stages-of-production framing without immediate overconsumption) lacked logical integrity. Garrison’s ABCT stages-of-production model, that incorporates immediate overconsumption as an essential component, has long been, and remains, the theory’s standard exposition. Unfortunately, immediate overconsumption has been rendered empirically untenable as evidence that makes it increasingly clear that consumption is sticky has emerged. By reframing ABCT in terms of the full structure-of-capital, rather than only the stages-of-production, we bring about a reconciliation of Hayek, Mises, Joseph Schumpeter and the empirical literature indicating that consumption is sticky.