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

Bank Credit Expansion and Its Effects on the Economic System 359As we will have the opportunity to study later, prior toMises various scholars of the School of Salamanca (Saravia dela Calle for instance) and others of the nineteenth century,mainly intellectuals of the Currency School (Henry Thornton,Condy Raguet, Geyer, etc.), sensed that booms provoked bycredit expansion ultimately and spontaneously reversed, causingeconomic crises. Nonetheless Mises was the first to correctlyformulate and explain, from the standpoint of economic theory,the reasons this is necessarily so. Despite Mises’s momentousinitial contribution, a completely formulated analysis of the differenteconomic effects which comprise the market’s reaction tocredit expansion first became available with the writings ofMises’s most brilliant student, F.A. Hayek. 72 In the next sectionwe will examine these effects in detail. 73directly on the effects credit expansion exerts on the productive structure,and to somewhat minimize the importance of Mises’s analysis ofthe disparities between “natural interest” and “monetary interest.”Knut Wicksell’s main work in this area is Geldzins und Güterpreise: EineStudie über die den Tauschwert des Geldes bestimmenden Ursachen (Jena:Verlag von Gustav Fischer, 1898), translated into English by R.F. Kahnwith the title Interest and Prices: A Study of the Causes Regulating the Valueof Money (London: Macmillan, 1936 and New York: Augustus M. Kelley,1965). Nevertheless Wicksell’s analysis is much inferior to Mises’s, particularlybecause it rests almost exclusively on changes in the generalprice level, rather than on variations in relative prices in the capitalgoods structure, which is the essence of our theory. Mises summarizedand completed the exposition of his own theory in Geldwertstabilisierungund Konjunkturpolitik (Jena: Gustav Fischer, 1928); English translation byBettina Bien Greaves, “Monetary Stabilization and Cyclical Policy,”included in On the Manipulation of Money and Credit (New York: FreeMarket Books, 1978).72 Hayek’s most important works are: Geldtheorie und Konjunkturtheorie,(Beitrage zur Konjunkturforschung, herausgegeben vom ÖsterreichischesInstitut für Konjunkturforschung, no. 1 [Vienna 1929]), translatedinto English by Nicolas Kaldor and published as Monetary Theory and theTrade Cycle (London: Routledge, 1933, and New Jersey: Augustus M.Kelley, 1975); Prices and Production, the first edition of which appeared in1931 and the second, revised, updated edition of which appeared in1935 and was later reprinted more than ten times in England and theUnited States; Profits, Interest, and Investment (1939, 1969, 1975); theseries of essays published in Money, Capital and Fluctuations: Early Essays,