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Source link: http://archive.mises.org/18880/the-austrian-business-cycle-theory-in-a-major-motion-picture/

The Austrian Business Cycle Theory in a Major Motion Picture

October 29, 2011 by

The new film Margin Call is a tale of a Lehman-like collapse and a Goldman Sachs-like crony return that is the first to even try to explain the Austrian Business Cycle Theory in a major studio film even though they do miss the cause of these fluctuations that is the Federal Reserve, central banks, and the the fiat currencies that cause these bubbles, panics, booms, manias, and busts.

The head of the investment bank during the height of the financial crisis tries to justify his existence and his actions mixing a little Austrian Business Cycle Theory as well as Helmet Schoeck’s theory of envy and social behavior as well as an equilibrium hypothesis:

‎”So you think we might have put a few people out of business today. That its all for naught. You’ve been doing that everyday for almost forty years Sam. And if this is all for naught then so is everything out there. Its just money; its made up. Pieces of paper with pictures on it so we don’t have to kill each other just to get something to eat. It’s not wrong. And it’s certainly no different today than its ever been. 1637, 1797, 1819, 37, 57, 84, 1901, 07, 29, 1937, 1974, 1987 – Jesus, didn’t that [$#@&] me up good – 92, 97, 2000 and whatever we want to call this. It’s all just the same thing over and over; we can’t help ourselves. And you and I can’t control it, or stop it, or even slow it. Or even ever-so-slightly alter it. We just react. And we make a lot money if we get it right. And we get left by the side of the side of the road if we get it wrong. And there have always been and there always will be the same percentage of winners and losers. Happy foxes and sad sacks. Fat cats and starving dogs in this world. Yeah, there may be more of us today than there’s ever been. But the percentages-they stay exactly the same.”

Despite his moralizing he is on to something. Identifying the problem is the start to the solution.

The film was written by the son of a Merrill executive and stars Kevin Spacey, Jeremy Irons, Stanley Tucci, and Demi Moore.


Dan October 29, 2011 at 11:58 am

Did you like the movie???

Today there is no cause/effect analysis. It is all politics and truthfully the politicos are not very bright. Clearly 1971 and subsequent vendor-finance scheme was not sustainable. It doesn’t work for companies (GM, Allis_Chalmers, …) and it doesn’t work for countries (USA/China-Japan-Mexico-Canada, Greece/Germany-France). If we are to have a central bank it should conservatively manage the money level so that aggregate leverage is kept at a sensible level. If done so, then capital would be managed in a more conservative fashion for real growth.

seymourblogger October 30, 2011 at 7:03 pm

Today there is no cause/effect analysis.

Perfect. No cause and effect because we are not in linear time anymore. Just Event after Event.

Please visit me as I write about this all the time through post modern theory via Foucault, Zizek and Baudrillard mostly.

Aristippus October 29, 2011 at 5:02 pm

Notice that the 1920 recession is not mentioned.

Hawks5999 October 29, 2011 at 9:43 pm

I missed that theory. I thought the driving theory of Margin Call was that TV actors act better when they can use the F word in every line of dialog.

Am I the only one who thought the whole movie was an attempt to provide cover for malefactors on Wall St? I mean I’ve never seen so much faux anguish over run of the mill fraud. And the scene referenced above would have been better if Jeremy Irons character just quoted Jessica Rabbit “I’m not bad, I’m just drawn that way.”

Seriously, it would have been just a slightly more explicit version of the whole “don’t blame me I’m just the person fate picked to play this role.”

No, the fraudsters on Wall St created the mess (with plenty of help and encouragement from the government), it didn’t just happen as some force of nature.

A pox on all their houses.

Anthony October 29, 2011 at 11:00 pm

I would switch the order in your last thought… the government created the mess, with some help from fraudsters.

The crash would have happened without a single case of fraud, not that that excuses the bankers.

Bodhi Densmore October 30, 2011 at 11:51 pm

The creation of money by the Fed is fraud. So, is every creation of money by fractional reserve lending. There would be no business cycle without this basic fraudulent practice.

seymourblogger October 30, 2011 at 7:14 pm

This is the theme of DeLillo’s Cosmopolis. We are now in “speculative capital” not capital producing anything. The politicos are dumbfounded and have no idea what to do. The neo liberals are bankrupt and the conservatives just flapping their mouths.

In reading Burns’ Ayn Rand (I think I have this ref right) Von Mises and she argued about the draft. Rand didn’t see things all the way to the end (her affair with a young boy) and certainly not on this.

Neither did I as I was for the end of the draft during the Viet Nam protests. Of course Von Mises was correct: if you have an absolutely volunteer army, then you are going to get an army of mercenaries. And this is what we have now. Rand didn’t see that and argued with him on the basis of individual rights, which a libertarian would agree with.

As Michel Foucault said:

People know what they do (say).

Frequently they know why they do (say) what they do(say).

But what they don’t know is what they do (say) does.

This is Rand’s position on the draft and also Von Mises who saw what they said (did) did.

I’m blogging on Rand as a post modern philosopher who wrote fiction. As Cronenberg makes films. solopassion is driving me out of there.

And everyone familiar with Rand’s thought and Von Mises would know that neither one of them would have advocated the 2008 bailout. Let them tank. Of course the entire image of the US would have gone with that crash. that’s what they were protecting.

Dan Prentice October 30, 2011 at 10:19 am

Looking forward to viewing the movie

Jimmay! October 30, 2011 at 12:20 pm

Movies not playing anywhere near me this week. Theatres are too conjested with paranormal activity three for halloween I guess. Ill catch it next weekend.

Josep October 30, 2011 at 4:05 pm

“the government created the mess”. Yes, but many people on WS is also guilty, nobody put a gun on their heads to take those action.

Eric Evans October 30, 2011 at 5:03 pm

As far as the housing market is concerned, they assured people that housing market activities would be guaranteed, backed by the government. They also took away any incentive to save the money for something else by bringing the interest rate down to near zero. And once one person does it, that person gains more power over the market and threatens the existence of all those who don’t, so you have to do it if you want to stay afloat. That’s called a passive threat.

I’ll put it to you this way: Under normal circumstances you wouldn’t be willing to walk platform to platform across a high wire. But if someone forced you up on a platform, gave you a harness and a safety net to cross and then lit the platform you’re standing on on fire, do you think you’d start walking across?

Jeffrey Tucker October 30, 2011 at 8:08 pm

I’m pretty sure that this is the best finance/WS movie I’ve ever seen. The impression it leaves is extremely powerful. There are no splashy scenes, no trumped up relationship dramas, no shocking bits of surprise, violence, etc. Instead, we get the straight dope with a very deliberate pacing of time that is stable and yet the drama remains incredibly intense. In fact, the viewer feels when watching just about the way people in this setting feel every day. There is this sense of uncertainty, a constant sense of “what if we are wrong,” a griping but quiet fear throughout. It raises many profound questions. Congratulations are due to the makers of this film, who somehow managed to make a sell single the very core of a plot line. Wonderful.

Artisan November 1, 2011 at 4:12 pm

Wow. This comment is worth a million tickets I would say… my seat is booked anyways. I believe the director should come at the M-Institute some day and confirm.

seymourblogger October 30, 2011 at 11:44 pm

It’s coming to my independent theatre in Springfield MO, the MOXIE – a non-profit took over the failing Moxie. It did not fail because it was run poorly either. ON the contrary, Dan did everything right.

I can’t wait to see it. Have you read Cosmopolis? I write about that all the time too. In different ways.

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