The rise and fall of the subsistence fund as a resource constraint in Austrian business cycle theory

Eduard Braun and David Howden

The Review of Austrian Economics, 2017, vol. 30, issue 2, No 5, 235-249

Abstract: Abstract The “subsistence fund” was once an integral part of Austrian business cycle theory to indicate the resource constraint on the ability to complete investments. Early agrarian and industrial economies were constrained by resource availability in a manner consistent with that alluded to by the subsistence fund. This link became more tenuous as the growth of the financial economy in the twentieth century removed the apparent importance of pre-saved goods to complete investments. At this point the subsistence fund came to be used only as a metaphor and was jettisoned from Austrian business cycle theory. The present paper points to the merits of the subsistence fund in explaining the turning point of the business cycle as compared to alternative explanations. It also works out the deficiencies in historical expositions of the Austrian theory based on the subsistence fund, and traces the evolution of the resource constraint at the core of Austrian economists´ treatment of the business cycle.

Keywords: Subsistence fund; Early business cycle theories; Austrian business cycle theory; Wages fund (search for similar items in EconPapers)
JEL-codes: B13 B25 E32 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s11138-016-0347-y

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