For one thing, the entire theory is predicated on the assumption that economic agents not only don't possess perfect information and foresight about the future, but cannot and do not react to events occuring around them in real time. To believe that real interest rates will be suppressed by inflation for a prolonged period of time comprising the "boom" you have to believe lenders don't notice rising prices around them and readjust nominal interest rates upward to keep the real rate constant.
For another, in the theory the mechanism by which the "boom" ends and the "bust" begins is a rise in real interest rates as they return to their equilibrium, making low-returning investment projects suddenly unprofitable on margin. This represents a misunderstanding of how finace works and what forms of liabilities are used to do what. Short-term debt like commercial paper is used to meet payroll and fund daily operations and basically allows for firms to consumption-smooth, because operating revenue flucuates more than operating costs. But no self-respecting firm would dream of building a factory or any large, long term project and financing it with short-term money. The market for long-term bonds exists to prevent exactly the thing Austrians say causes the business cycle.
|Inflation drives nominal interest rates because bond markets |
are forward looking;the monetary authority has
little to no ability to peg a real magnitude