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The ABCT is not perfect

And we are the first ones to acknowledge that. The ABCT is a very sound theory indeed, but it cannot possibly account for every single economic parameter and variation. Some business cycles will conform to it very well, and some will do so far less. However, on average, the largest (and most important) cycles do conform and confirm the ABCT very closely. We are mostly interested in these ones simply because they are the ones with the largest impact on people’s lives. This would be you, us and everybody else. Solve the large problem first and take care of the minor details later on. Even on this topic the ABCT is an “economic” theory.

The ABCT is not “ideal”

Again, this is academic sabre rattling. So the ABCT does not use “ideal” economic conditions to create and “ideal” economic model. So what? Ideal models are only useful insofar they are a point of reference to everything else or a starting point. Ideal models are never used in real life. Ideal models typically arise once they are obsolete and are used as synonyms to faulty or incomplete. Furthermore, most “ideal” economic theories are based on faulty economic reasoning; this being so, why should the ABCT concern itself with not being “ideal”?

Where is the evidence?

In other words, give me the GDP or CPI forecasts that the theory made and were confirmed by historical data. Or, we haven’t seen any boom and bust cycle that could be closely explained by the theory.

We have dealt with the “numeric” fetish above and so we won’t repeat it. As to the second “accusation”, the one that no cycles ever conform to the ABCT, there are piles of sound economic research to the contrary. As a matter of fact, almost every single major economic cycle has been explained using ABCT. It is just a matter to ask our accusers to point to one and retrieve the relevant information. As this information is voluminous in nature, we won’t attempt to do so in this piece.

It cannot be Statistically “proven”

In a sense this is correct, as with any other Economic Theory. The only two proper criteria of correctness are:

  1. It must be logically deduced from basic economic principles.
  2. It must explain the peculiarities of cycles through purely deductive means.

Economic theories can only be “false” by logical errors or because the phenomena that they explain cannot be seen in real life or are not sufficiently explained.

In other words, if it is improperly deduced from basic economic principles or cannot explain economic events, the theory is unsound.

So far, the ABCT has been continuously challenged for over 80 years to no avail. The so-called “smoking gun” is still missing. This is not to say that eventually a defect will be found forcing to create ABCT version 2.0; it will (this much is a certainty). However, in the meantime, it works just fine.

If those conditions are satisfied, the best that Statistical analysis can do, is to point at smaller details that may need to be taken into consideration. Fair enough. Many Austrian economists are doing just that as we type.


The Austrian Business Cycle Theory is not only a great theoretical achievement, but more importantly, it is a great practical achievement. It is important precisely because it works and it tells us what our mistakes are. It tells us why government should not be allowed to set monetary policy and what the consequences will be if they do. It tells us that sound money and no government intervention is the best practical solution to all monetary issues. Today. Tomorrow things may evolve and change. We will let you know when this happens. In the meantime, you have a decision to make and it’s only yours, as usual.

Note: please see the Glossary if you are unfamiliar with certain words.

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