Hayek on the Risk-Taking Cycle & the Business Cycle

It’s become newly fashionable today, but Hayek has ALWAYS emphasized the existence of a risk cycle in the midst of the boom / bust cycle.  Here’s an example:

“Inflation at first merely produces conditions in which more people make profits and in which profits are generally larger than usual.  Almost everything succeeds, there are hardly any failures.  The fact that profits again and again prove to be greater than had been expected and that an unusual number of ventures turn out to be successful produces a general atmosphere favorable to risk-taking.  Even those who woud have been driven out of business without the windfalls caused by the unexpected general rise in prices are able to hold on and to keep their employees in the expectation that they will soon share in the general prosperity.”

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One Response to Hayek on the Risk-Taking Cycle & the Business Cycle

  1. Dan Nunan says:

    Is this true??

    “Hayek came to Cambridge in January 1931 to give a one-lecture version of his theory to the Marshall Society before starting on his LSE lectures. His exposition was greeted with complete silence. Keynes was in London, but Richard Kahn, who was in the audience, felt he had to break the ice. ‘Is it your view’, he asked Hayek, ‘that if I went out tomorrow and bought a new overcoat, that would increase unemployment?’ ‘Yes,’ replied Hayek, turning to a blackboard full of triangles, ‘but it would take a very long mathematical argument to explain why. –Robert Skidelsky, John Maynard Keynes: The Economist as Saviour, 1994, p. 456. [Quoted from Kahn, The Making of Keynes's General Theory, p. 182.]

    I rest my case.

    Credit to Brad Delong for blogging this a few weeks ago.”

    http://community.nytimes.com/comments/krugman.blogs.nytimes.com/2010/04/07/austrian-followup/?permid=62#comment62

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