In his early years Hayek anticipated that the monetary theory
of trade cycles, now known as the Austrian business-cycle theory (ABCT) would
become widely known by business people who would refuse to borrow when the
central bank reduced interest rates to an artificially low level. That would
dampen booms caused by money created ex nihilo and reduce the severity of
recessions.
Hayek was wrong because the Keynesian tsunami pushed the
ABCT into a tiny corner so that few business people learned it. However, we may have reached a similar dampening of
economic cycles by another route, that is, by central bankers making central
banking irrelevant. Glimpses of this can be seen in Japan, as I wrote in this posting.
