THE SUBPRIME CRISIS IN THE LIGHT OF THE AUSTRIAN BUSINESS CYCLE THEORY: CREDIT EXPANSION, DECISION ERRORS AND MORAL HAZARD

The first global financial crisis of the 21st century, known as the sub-prime crisis, has led the economic profession to get back to two theories that prima facie seem to match the evolution of events of the past years: Hyman Minky's "financial instability hypothesis" and the Austrian business cycle theory (Ludwig von Mises and Friedrich A. von Hayek), also named as endogenous monetary business cycle theory. In contrast to the view of Minsky that regards the capitalist system as inherently unstable, this article presents the endogenous monetary business cycle theory as a theoretical and conceptual framework that allows to differentiate between periods of sustainable economic growth (sustained by a prior increase in real savings) and periods of unsustainable growth (stimulated by the process of credit expansion in an environment of loose monetary policy) that result in economic bubbles and business cycles. This theoretical framework is then used to explain the current economic and financial crisis.