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

Additional Considerations on the Theory of the Business Cycle 471This early thesis of Hayek’s, which partially coincideswith that of Marx, would only be valid if the very Austriantheory of business cycles had not revealed that economiccrises cause great damage to the productive structure andwidespread consumption of accumulated capital. Theseeffects seriously hinder the harmonious economic developmentof any society. Moreover (and this is even more important)the theoretical, legal, and economic analysis carried outhere is aimed at demonstrating that economic crises are not aninevitable by-product of market economies, but on the contrary,result from a privilege governments have granted banks,allowing them, with respect to monetary demand deposits, toact outside the traditional legal principles of private property,principles vital to market economies. Thus credit expansionand economic cycles arise from an institutionally-forced violationof the property rights involved in the monetary bankdepositcontract. Therefore crises are in no way inherent in thecapitalist system, nor do they inevitably emerge in a market economysubject to the general legal principles that constitute its essentiallegal framework, an economy in which no privileges are conferred.A second link connects Marxism and the Austrian theoryof business cycles. Indeed if any ideology has justified and fedthe class struggle, strengthening the popular belief that it isVerein für Sozialpolitik which took place in Zurich in September 1928,instead of in the context of his other research studies. (This lectureformed the basis of his 1929 book.) Hayek’s speech was subject to a rigorousexamination by professors who were little inclined to accept conclusionsthey viewed as too original or revolutionary. Hayek’s firstendorsement of a 100-percent reserve requirement is found in note 12 ofhis article, “The Monetary Policy of the United States after the Recoveryfrom the 1920 Crisis,” p. 29 (see also upcoming footnote 95). Hayek’serroneous and short-lived concession regarding the supposedly beneficialeffect of credit expansion on technological innovation echoes thenaive inflationism implicit in Joseph Schumpeter’s book, Theory of EconomicDevelopment. A brilliant critical evaluation of Schumpeter’sunorthodox nature as viewed from the perspective of the Austrian theoryof capital and business cycles is presented by José Antonio Aguirrein his “Introducción” to the Spanish edition of Böhm-Bawerk’s book,Capital and Interest, vol. 2: Positive Theory of Capital (Teoría positiva del capital)(Madrid: Ediciones Aosta/Unión Editorial, 1998), pp. 19–22.