 Time for a pop quiz. What do Ron Paul, Peter Schiff and Bob Murphy all have in common? No, it's not that they all have the figures of a Greek god, though I get where you're coming from. Rather, it's that they all predicted with astounding accuracy the 2008 financial crisis years before it happened, while the rest of the world was left either scratching their heads or buying beans and guns in preparation for the collapse of civilization. How did they do it? By using the Austrian business cycle theory. The purpose of any business cycle theory is to explain why it is economies seem to explode and implode at seemingly random intervals, which is obviously no small task considering how unpredictable such a spontaneous, decentralized network of action and economy is by its own nature. But in my mind, out of the entire crown that makes up the Austrian school, the ABCT is the dual. As always, it uses impeccable a priori logic through the method of praxeology to discuss human behavior and apply it to economics. This time casting a much more empirical claim than the Austrian method normally does, thereby opening itself up to be conclusively verified which it is. Nearly every economic crisis in modern history can be attributed to the problems I'll lay out here, so let's cut to the chase and talk about what they are. So what I'm going to try and do here is give you my briefest explanation possible before reassessing my own explanation and expanding upon it and also comparing it to a competing business cycle theory, because for a complete understanding of the ABCT you need an already intermediate understanding of economics as a whole, as well as the Austrian school, to really grasp the broadest implications that it has. So I'll give my most basic explanation with the prior knowledge that people already versed in this topic will find flaws in it, but then I'll try to go back over them using terms which people might not even understand if their only knowledge of economics is this basic video series. So if that sounds like you and four episodes into this you still haven't read any books by Murray Rothbard or even listened to several Mises University lectures, you really should start doing that about now. My personal summary is, the rate of interest can be seen as the average cost of borrowing or lending out money. When you save cash and put it in the bank, the bank loans out that cash to people who want to borrow it for a price, which is interest, and in return for offering up this money that you don't want to spend, you get a little bit back. When left to the market, an interest rate is just as affected by supply and demand as any other good. If lots of money is being held in a bank vault, not doing anything, the bank will charge a low rate of interest in order to attract more borrowers with a lower price. If there are lots of people wanting to borrow but not much money to go around, the interest rate will obviously be made higher as it tends towards the new equilibrium with low supply and high demand. Problems specifically arise when the market doesn't control the interest rate and when a central bank does by changing the amount of new money entering the money supply in order to regulate the amount of money held by banks and therefore adjust the rate of interest themselves. By now it should be clear to my viewers why a single state-controlled entity controlling the price of an entire good will create massive disequilibrium for it. These central banks like to keep interest rates lower than they otherwise would be in order to keep spending high and saving low, boosting the growth of GDP and keeping constant inflation which they believe is justified for creating higher employment. And GDP plus employment are the only two factors politicians care about because it's what gets them easily elected. So by the central bank manipulating the price of money to lower than what it should be and creating a cycle of over investment and over consumption, all of the prices downwind of this will be at least somewhat distorted away from their equilibrium price. But as we know prices always tend towards equilibrium, so when the market experiences some sort of monetary shock all the prices at once try to return to the true market equilibrium. The entire economy becomes a bubble due to being grossly overvalued and bursts at once creating a recession. The harsh yet obvious fix is to stop manipulating the interest rates, let the market decide the equilibrium and stop perpetuating this cycle. But what we instead see is when the bubble bursts, central banks double down on this practice, dropping interest rates lower than they were before the crash in order to create more short-term investment and spending and stop the fall. But the fall is simply a correction of the previous manipulation so this artificial bubble is instead just swallowed up by a new and even bigger artificial bubble. And this is how Ron Paul perfectly called it a few years after the dot-com stock bubble burst that the housing market would be next. The dot-com bubble was created in part due to cheap money from the Federal Reserve and when it did burst they made money even cheaper to stop the bursting but instead all they did was push the bubble into the future and make it even bigger for the next time round by incentivising continued malinvestment in the future by stopping price correction in the present. Ron Paul, among others, realised that the housing market would be the next victim of this malinvestment and of course that meant that the ramifications this time wouldn't just be a shock to the stock market but the entire country which went on like a domino effect around the entire developed world. And when you have this view in mind and you look back at business cycles throughout history you'll see that not even the fixed exchange rates of the gold standard could stop the government manipulating the interest rates. During times of war governments would suspend the gold standard by not requiring banks to exchange notes for gold reserves meaning the banks could print unlimited money for a temporary period in order to give it to the government to fund their wars but while they have this privilege of literally printing as much money as they want they used it on private investment for short term profits and after the gold standard is resumed all the prices go haywire and you have the Great Depression. The answer here is blindingly obvious it wasn't that the gold standard imposed too much of a limit on government spending and malinvestment it's that not even the gold standard is enough to limit it and that the creation of money just like any other good should only be done by the free market. There should be no central bank all banks should be completely independent measured by market competition in order to provide the best quality of money possible which would be likely to be 100% reserves of precious metals such as gold and silver and for supply and demand to work on setting the interest rates according to the supply of money on hand in banks and the demand to borrow of consumers and producers. When lots of people are putting their savings into banks they are telling the market that they want to spend less money now in order to spend more money later as this lowers the interest rate it tells producers to take out a loan now while it's cheap in order to build a long term project when consumers want to spend again as consumers are thinking more in the long term. This relationship is symbiotic and this is why savings are so incredibly important in an economy. The rate of saving is another price signal which informs entrepreneurs where resources are to be most efficiently allocated and especially when. This is what malinvestment truly means it's not as simple as I made it sound earlier that there is just too much investment it's that there is too much in all the wrong places. The investment is going into projects not demanded as much by consumers as producers would think it is because the price signal of money is being lowered and so they're getting the wrong signals. The entire market is meant to work in synchronization with itself but just as rent control desynchronizes the price of housing away from the equilibrium so do artificial interest rates away from the equilibrium price of money which is going to have near infinite consequences for the whole economy at large. The direct opposite of this business cycle theory is obviously that of the Keynesians who say all crashes are simply a phenomenon hard coded into markets by their own nature and rather than question if government currency manipulation is the culprit they instead see it as the solution. By using aggregates as large as Keynesians do such as measuring the total investment in an economy and just taking it for granted that bigger number equals more gooder with no regard to where that investment is going. They don't care if a crash in investment is the market's hangover after getting wasted the night before on cheap money all they care about is getting that line on the chart back up to where it was before by any means necessary it's curing a hangover with a shot of tequila. The Austrian understands that obviously not all capital is equal and homogeneous but most is in fact heterogeneous and only to be used for one specific purpose. If there were eight car factories and two cake bakers in a town a Keynesian might say brilliant this town has 10 units of capital while neighboring ones only have six they're obviously doing great but an Austrian would say is eight car factories for a small town where you can walk to most places actually sustainable. How long are these factories going to stay in business and wouldn't it be a good thing if some of them were instead freed up for producing shoes? Aside from the uses of capital we also consider the order of goods from producer only goods at the highest level and consumer only goods at the lowest with a good bit of crossover in between simply put because the Keynesian model reduces the complex human network of markets to just numbers and charts it completely goes over their heads how their tampering only makes these problems so much worse in a free banking system there would still be peaks and troughs of prices but most likely only localized to specific areas where a firm has made an error and very brief as prices return to equilibrium then continue their little nature of tug-and-war but when there are 100 banks controlling the economy's interest rate instead of just one the risk of economy-wide money misallocation is reduced by 100 times this is in exactly the same way that if there was only one wine manufacturer providing wine for millions of people and someone accidentally spoils a batch all the wine drinkers in the country are at risk of death compared to if there were a thousand wine makers and just one of them made one mistake the ramifications for the health of wine lovers everywhere would be comparatively tiny but every single person uses money so one mistake from the one money supplier affects every single person the worst part is that the money supplier has managed to convince themselves the public and academia that their poisoning of the wine is in fact good and that it's your adverse response to ingesting poison that is bad and it's all because of this one man this is why we hate keens so damn much as this video has been made in the middle of the coat in the middle of the koof crisis and the subsequent total meltdowns of government policymakers across the world what do you think will happen now that interest rates are once again fallen through the floor in order to supercharge short-term spending with no consideration for the long-term effects well let's remember the definition of insanity the definition of insanity is insanity is doing the exact same fucking thing over and over again expecting shit to change that is crazy and finally it's only just dawned on me that I've gone this far without promoting the amazing Austrian economics discord server which has a channel dedicated to every topic you can imagine with huge lists of sources pinned for you to read out of your own interest or to find material backing up claims that I make as I don't list sources in my videos because they're all off the top of my head from books and articles I've already read and take some snippets from these aren't essays after all but recommended reading here is meltdown by tom woods for the 2008 financial crisis and america's great depression by moro roth bard for obviously the great depression take it easy