Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

292 Money, Bank Credit, and Economic CyclesMoreover although this chart is not strictly necessary forexplaining the essential theoretical arguments, and in fact,authors of the stature of Ludwig von Mises never used it intheir presentation of the theory of capital and of businesscycles, 26 traditionally many theorists have considered it helpfulto use simplified charts of the stages in real productionprocesses (like Chart V-1) in order to clarify their arguments. 2726 Mises, The Theory of Money and Credit and also Human Action.27 The first theorist to propose an illustration basically identical to that ofChart V-1 was William Stanley Jevons in his book The Theory of PoliticalEconomy, the 1st edition of which was published in 1871. We have useda reprint of the 5th edition (Kelley and Millman, eds.), published in 1957in New York; page 230 includes a diagram where, according to Jevons,“line ox indicates the duration of investment and the height attained atany point, i, is the amount of capital invested.” Later, in 1889, Eugen vonBöhm-Bawerk gave more in-depth consideration to the theoretical issueof the structure of successive stages of capital goods and to using chartsto illustrate this structure. He proposed to represent it by successiveannual concentric circles (the expression Böhm-Bawerk uses is konzentrischeJahresringe), each of which depicts a productive stage; the circlesoverlap other larger ones. This type of chart appears, along with Böhm-Bawerk’s explanation of it, on pp. 114–15 of his book, Kapital und Kapitalzins,vol. 2: Positive Theorie des Kapitales; the corresponding pages ofthe English edition, Capital and Interest, are pp. 106–07, vol. 2. The chiefproblem with Böhm-Bawerk’s chart is that it depicts the passage of timein a very clumsy way and therefore reveals the need for a second dimension(vertical). Böhm-Bawerk could easily have gotten around this difficultyby replacing his “concentric rings” with a number of cylindersplaced one on top of the other, so that each cylinder has a base smallerthan the one below it (like a circular wedding cake whose layers aresmaller in diameter the higher their position). Hayek later overcame thisdifficulty, in 1931, in the first edition of his now classic book, Prices andProduction, foreword by Lionel Robbins (London: Routledge, 1931; 2ndrev. ed., in 1935); p. 36 of the first edition and p. 39 of the second. Fromthis point on, unless we indicate otherwise, all quotations taken fromthis book will come from the 2nd edition. The book contains a chart verysimilar to Chart V-1. Hayek used this type of illustration again in 1941(but this time in continuous terms) in his book, The Pure Theory of Capital(see, for example, p. 109). Moreover in 1941 Hayek also developed aprospective three-dimensional chart of the different stages in the productionprocess. What this chart gains in accuracy, precision, and elegance,it loses in comprehensibility (p. 117 of the 1941 English edition).