The Austrian Contribution Was to Posit the Deviation of the Market Rate from the Natural Rate as the CAUSE of the Trade Cycle

The price mechanism, then, coordinates economic activity. In a trade cycle, economic activity somehow becomes uncoordinated. In particular, in the crisis stage of the cycle an overproduction of capital goods exists. As such, any adequate theory of the cycle must explain how this situation of disequilibrium in this specific market arises. What keeps the interest rate from performing its coordinative function? 

Once again Wicksell’s framework proved helpful. Wicksell posited another interest rate, the ‘market rate of interest’. The market rate is influenced by banks’ lending activities and can differ from the natural rate: Specifically, it will fall below the natural rate whenever banks increase the amount of credit. Wicksell used the natural rate / market rate distinction to discuss movements in the general price level. The Austrian contribution was to posit the deviation of the market rate from the natural rate as the cause of the trade cycle. 

—Bruce Caldwell, ed., editor’s introduction to The Collected Works of F. A. Hayek, vol. 9, Contra Keynes and Cambridge: Essays, Correspondence, by F. A. Hayek (Indianapolis: Liberty Fund, 1995), 15.