A major underpinning of Austrian Business Cycle Theory is the concept of Cantillon effects. You see, a few hundred years ago, Richard Cantillon observed that when new money enters the economy, the money is not spread out equally (i.e., not every person will receive the same share of the new money). Instead, money tends to enter the economy at particular points. When this money expansion is coming from a government or central bank, it's reasonable to believe that the first to receive the new money will be those with political pull. Those that receive the money first are excused from the inflation that will soon follow.
Now, this may seem unfair. A select few benefit from free money, while the rest suffer from inflation. Indeed, it is unfair, but that's not really the point. ABCT suggests that this new money is spent by the select industries lucky enough to receive the new money, which props up the production of input goods for that industry. At this point, the economy becomes skewed toward those industries. Overproduction of these input goods is what Austrians call "malinvestment," and will eventually lead to an economic crisis.
Enter some Keynesian or Modern Monetary Theorist.
"Ah, but a Cantillon effect is not solely a central banking phenomenon. Suppose a business writes a promissory note. The receiver of the note will then use it to purchase input goods, and this will produce the same Cantillon effect as monetary expansion by a central bank. So, should we outlaw all forms of credit?"
Well, "some Keynesian or Modern Monetary Theorist" (if that is your real name), you have completely missed the point. Cantillon effects are not intrinsically harmful to the economy, they are simply the method through which malinvestment is achieved.
The reason the Cantillon effects stemming from money printing are bad is because there is no real wealth to back up the money. The money has been created "out of thin air." When the economy is eventually skewed toward the industries where the new, false money resides, we have begun investing in industries based on false information.
In contrast, if a business issues a promissory note, they do so with the ability to (or expectation of the ability to) pay the note. The note will be paid off with profit generated by the business - meaning real wealth is being created by this business. There is absolutely nothing wrong with real wealth transforming the economy. In fact, it is a magnificent and necessary consequence of a growing economy. The real wealth is being transferred to the input goods of this profitable businesses, allowing investments to flow to the factors of production of a profitable businesses.
Maybe Austrians need to be more clear on this issues. Cantillon effects can be positive in an unhampered market economy. The problem only arises when false wealth is created.
