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

510 Money, Bank Credit, and Economic Cyclesrevolution Carl Menger started in 1871 has been fullyabsorbed by modern economic theory, to a large extent thisclaim is mere rhetoric. The old “objectivism” of the ClassicalSchool which dominated economics until the eruption of themarginalist revolution continues to wield a powerful influence.Moreover various important fields within economic theoryhave until now remained largely unproductive due to theimperfect reception and assimilation of the “subjectivistview.” 1Perhaps money and “macroeconomics” (a term of varyingaccuracy) constitute one of the most significant areas of economicsin which the influence of the marginalist revolutionand subjectivism has not yet been noticeable. In fact with theexception of Austrian School theorists, in the past macroeconomicscholars have not generally been able to trace their theoriesand arguments back to their true origin: the action ofhuman individuals. More specifically, they have not incorporatedthe following essential idea of Menger’s into their models:every action involves a series of consecutive stages which theactor must complete (and which take time) before he reacheshis goal in the future. Menger’s most important conceptual1 For example, when Oskar Lange and other theorists developed theneoclassical theory of socialism, they intended it to apply Walras’smodel of general equilibrium to solve the problem of socialist economiccalculation. The majority of economists believed for many years thatthis issue had been successfully resolved, but recently it became cleartheir belief was unjustified. This error would have been obvious hadmost economists understood from the beginning the true meaning andscope of the subjectivist revolution and had they completely imbuedthemselves with it. Indeed if all volition, information, and knowledge iscreated by and arises from human beings in the course of their free interactionwith other actors in the market, it should be evident that, to theextent economic agents’ ability to act freely is systematically limited (theessence of the socialist system is embodied in such institutional coercion),their capacity to create, to discover new information and to coordinatesociety diminishes, making it impossible for actors to discover thepractical information necessary to coordinate society and make economiccalculations. On this topic see Huerta de Soto, Socialism, EconomicCalculation and Entrepreneurship, chaps. 4–7, pp. 99–273.