Reply To: Glasner and Austrian Unsustainability


Here is Bob Murphy’s reply to Glasner:

On the second point, you’re correct. Glasner doesn’t account for the fact that prices of capital goods move disproportionately, depending on their degree of specificity, in response to a change in output prices. Those that fall the most, will not be profitable to produce once the downturn starts.

He doesn’t seem to acknowledge that unsustainability refers to inter-temporal malinvestments. The capital structure has been built up during the boom in a manner that does not satisfy people’s time preferences. (Any production process that doesn’t satisfy people’s preferences is unsustainable.) Once this fact is manifest in the financial crisis, there are profits to be earned by reconfiguring the capital structure in the way that best does satisfy people’s preferences.