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

A Critique of Monetarist and Keynesian Theories 517After John Bates Clark, another American economist,Irving Fisher, the most visible exponent of the mechanisticversion of the quantity theory of money, also defended thethesis that capital is a “fund,” in the same way income is a“flow.” He did so in his book, The Nature of Capital and Income,and his defense of this thesis lent support to Clark’s markedly“macroeconomic” view involving general equilibrium. 9In addition Clark’s objectivist, static concept of capital wasalso advocated by Frank H. Knight (1885–1962), the founderof the present-day Chicago School. In fact Knight, following inClark’s footsteps, viewed capital as a permanent fund whichautomatically and synchronously produces income, and heconsidered the production “process” to be instantaneous andnot comprised of different temporal stages. 10theorists, imbued with a synchronous, instantaneous conception of capital,have been deceived by the mathematical equality of income andinterest in a hypothetical situation such as this, and that from there theyhave jumped to the theoretically unjustifiable conclusion that productivitydetermines the interest rate (and not vice versa, as the Austriansassert). On this subject see: Eugen von Böhm-Bawerk, Capital and Interest,vol. 1, pp. 73–122. See also Israel M. Kirzner’s article, “The PureTime-Preference Theory of Interest: An Attempt at Clarification,”printed as chapter 4 of the book, The Meaning of Ludwig von Mises: Contributionsin Economics, Sociology, Epistemology, and Political Philosophy,Jeffrey M. Herbener, ed. (Dordrecht, Holland: Kluwer Academic Publishers,1993), pp. 166–92; republished as essay 4 in Israel M. Kirzner’sbook, Essays on Capital and Interest, pp. 134–53. Also see Fetter’s book,Capital, Interest and Rent, pp. 172–316.9 Irving Fisher, The Nature of Capital and Income (New York: Macmillan,1906); see also his article, “What Is Capital?” published in the EconomicJournal (December 1896): 509–34.10 George J. Stigler is another author of the Chicago School who has goneto great lengths to support Clark and Knight’s mythical conception ofcapital. In fact Stigler, in his doctoral thesis (written, interestinglyenough, under the direction of Frank H. Knight in 1938), vigorouslyattacks the subjectivist concept of capital developed by Menger, Jevons,and Böhm-Bawerk. In reference to Menger’s groundbreaking contributionwith respect to goods of different order, Stigler believes “the classificationof goods into ranks was in itself, however, of dubious value.”