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

Additional Considerations on the Theory of the Business Cycle 469requested less than before, given that new companies areless numerous. However the producers of the means of productioncannot withdraw their capital from their companies,and in addition, the importance of the capital involvedin the form of buildings, machines, etc., obliges producers tocontinue producing (if not, the idle capital would not bearinterest). Thus there is excessive production of the means of production.72Clearly part of the underlying economic reasoning behindthis analysis bears a strong resemblance to that behind theAustrian theory of the business cycle. In fact Hayek himselfmentions Tugan-Baranovsky as one of the forerunners of thetheory of the cycle he presents in Prices and Production. 73Furthermore it is interesting to note that Hayek himself,for a time, came to believe, like Marx, that economic crises wereinherent in the capitalist economic system, although Hayek consideredthem the necessary cost of maintaining an elastic72 Excerpt translated from Spanish edition. Ibid., p. 205; italics added.73 In the German literature similar ideas were introducedmainly by the writings of Karl Marx. It is on Marx that M.v.Tougan-Baranovsky’s work is based which in turn providedthe starting point for the later work of Professor Spiethoff andProfessor Cassel. The extent to which the theory developed inthese lectures corresponds with that of the two last-namedauthors, particularly with that of Professor Spiethoff, needhardly be emphasised. (Hayek, Prices and Production, p. 103)See also Hayek, The Pure Theory of Capital, p. 426. On Tugan-Baranovskyand the content of his doctoral thesis, The Industrial Crises in England, seethe biographical article on this author by Alec Nove, published in TheNew Palgrave: A Dictionary of Economics, John Eatwell, Murray Milgate,and Peter Newman, eds. (London: Macmillan, 1987), vol. 4, pp. 705–06.The error in all of these doctrines of a “lack of proportion” lies in the factthat they disregard the monetary and interventionist origin (in the formof the privileged operation of the banking system) of such a lack, theyfail to recognize the entrepreneurial tendency to detect and correct maladjustments(in the absence of state intervention) and they naivelyassume that government economic authorities possess a deeper knowledgeof these effects than the network of entrepreneurs which act freelyin the market. See Mises, Human Action, pp. 582–83.