The function of money in business cycle theory

This bachelor thesis is dealing with the topic money and especially emphasizing its function in business cycles. An ambition of this thesis is to resolve dilemma if money, as an important instrument in the real economy, can influence the fluctuation of economy. This thesis is based on the comparison of two distinct schools of economic thought- Post Keynesian and Austrian school. Both approaches despite different opinion on creation and function of money refuse the theory of money neutrality. The phenomenon of deflation is regarded equally from both schools, but Post Keynesian approach, which comes from a work of Irving Fisher, emphasizes negative impact of real debt increment on economy. On the other hand, Austrian School is aware of the unavoidable nature of deflation as a result of boom period, but by avoiding deflation the healing process in economy would be significantly slowed down. Thesis is then focusing on examination of allocation mistakes among individuals. Individuals are making mistakes, but Austrian theory demands further explanation of systematic framework of these mistakes. This view is applied on Minsky's financial instability hypothesis and institutional structure with emphasis on risk and creation of financial instruments. Last stadium of analysis is dealing with particular character of money supply. The Austrian perspective is discussed with reference to Post Keynesian theory of endogenous money and consequent repercussions for Austrian business cycle theory are highlighted. Even in the case that endogenous money theory infirm some of the aspects of Austrian cycle theory the methodological conflict occurs. On the basis of these particular comparisons the conclusion will try to decide if the business cycle is inherently present in every economy or if it is mainly caused by state interferences.