What Coffee Can Teach Us About Austrian Economics
Forget the “hangover theory ,” cheap credit is more like caffeine than booze
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I remember the period that started me on the path to caffeine dependency well: second semester, freshman year of college, 8 AM medieval history class.
Halfway through my large Peet’s dark roast, I developed tunnel vision, and my focus narrowed in on a subject that had seemed impossibly dry the week before.
I wasn’t addicted yet, but I was suddenly feeling strangely enthusiastic about Beowulf. Caffeine would soon become my go-to external source of motivation to power through boring or difficult tasks.
Sometimes it makes sense to temporarily alter your physical or mental state. Anesthesiology leaps to mind, as does the proverbial glass of wine with dinner. But few people consider it healthy to go through life in a constantly drunk or drugged state.
Coffee seems to be one of the biggest exceptions.
I’ve studied coffee’s history and physiological effects, and concluded that it is well suited to the tempo and work ethic of modern life. Coffee has changed the nature of the economy by making boring work more tolerable. Take caffeine away, and whole industries might collapse.
There are some striking parallels between the effects of coffee on society and the effects of cheap credit on the economy in the Austrian theory of the business cycle.
Inflation can boost economic activity in the short run when it arrives unexpectedly. Gold rushes, for example, would always lead to boom-and- bust cycles in the industries closest to gold mining. The euphoria of “found money” is much like the rush of that first sip of coffee after a long hiatus.
Once governments started to print money, they discovered that people eventually learn to expect inflation, and plan accordingly. When you constantly stimulate the economy, it builds a “tolerance” to inflation.
The Lucas critique observes that we have to factor changes in expectations of economic…
