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

A Critique of Monetarist and Keynesian Theories 513of production give rise, in a homogenous and horizontal manner,to consumer goods and services, without at all allowingfor the immersion of these factors in time and space throughouta temporal structure of productive stages. This was moreor less the basic framework for the research of classical economistsfrom Adam Smith, Ricardo, Malthus, and John StuartMill to Marshall. 4 It also ultimately provided the structure for4 Alfred Marshall is undoubtedly the person most responsible for thefailure of both monetarist and Keynesian School theorists, his intellectualheirs, to understand the processes by which credit and monetaryexpansion affect the productive structure. Indeed Marshall was unableto incorporate the subjectivist revolution (started by Carl Menger in1871) into Anglo-Saxon economics and to carry it to its logical conclusion.On the contrary, he insisted on constructing a “decaffeinated” synthesisof new marginalist contributions and Anglo-Saxon ClassicalSchool theories which has plagued neoclassical economics up to thepresent. Thus it is interesting to note that for Marshall, as for Knight, thekey subjectivist distinction between first-order economic goods, or consumergoods, and higher-order economic goods “is vague and perhapsnot of much practical use” (Alfred Marshall, Principles of Economics, 8thed. [London: Macmillan, 1920], p. 54). Moreover Marshall was unable todo away with the old, pre-subjectivist ways of thinking, according towhich costs determine prices, not vice versa. In fact Marshall believedthat while marginal utility determined the demand for goods, supplyultimately depended on “real” factors. He neglected to take into accountthat costs are simply the actor’s subjective valuation of the goals herelinquishes upon acting, and hence both blades of Marshall’s famous“pair of scissors” have the same subjectivist essence based on utility(Rothbard, Man, Economy, and State, pp. 301–08). Language problems(the works of Austrian theorists were belatedly translated into English,and then only partially) and the clear intellectual chauvinism of manyBritish economists have also helped significantly to uphold Marshall’sdoctrines. This explains the fact that most economists in the Anglo-Saxon tradition are not only very distrustful of the Austrians, but theyhave also insisted on keeping the ideas of Marshall, and therefore thoseof Ricardo and the rest of the classical economists as part of their models(see, for example, H.O. Meredith’s letter to John Maynard Keynes,dated December 8, 1931 and published on pp. 267–68 of volume 13 ofThe Collected Writings of John Maynard Keynes: The General Theory andAfter, Part I, Preparation, Donald Moggridge, ed. [London: Macmillan,1973]. See also the criticism Schumpeter levels against Marshall inJoseph A. Schumpeter, History of Economic Analysis [Oxford and NewYork: Oxford University Press, 1954], pp. 920–24).