Incorporating Social Capital into the Austrian Business Cycle Theory

This paper incorporates insights from social capital theory into the traditional Austrian business cycle theory (ABCT). Whereas in the standard Austrian narrative, recovery processes entail the reallocation of investment resources from more towards less-capital intensive industries, social capital may represent an alternative avenue for investment energies. Unique characteristics of social capital are surveyed and strategic opportunities for leveraging social capital by different decision maker types are explained. Recognizing social capital developments amidst business cycles helps to account for the long-term resilience and continual social progress of economic performance amidst increasingly interventionist central banking practices.