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

518 Money, Bank Credit, and Economic CyclesAUSTRIAN CRITICISM OF CLARK AND KNIGHTAustrian economists reacted energetically to Clark andKnight’s erroneous, objectivist conception of the productionprocess. Böhm-Bawerk, for instance, describes Clark’s conceptof capital as mystical and mythological, pointing out that productionprocesses never depend upon a mysterious, homogeneousfund, but instead invariably rely on the joint operationof specific capital goods which entrepreneurs must alwaysfirst conceive, produce, select, and combine within the economicprocess. According to Böhm-Bawerk, Clark views capitalas a sort of “value jelly,” or fictitious notion. With remarkableforesight, Böhm-Bawerk warned that acceptance of suchan idea was bound to lead to grave errors in the future developmentof economic theory. 11He thus criticizes Menger for not formulating a concept of the production“process” as one in which capital goods yield “a perpetual streamof services (income).” George J. Stigler, Production and Distribution Theories(London: Transaction Publishers, 1994), pp. 138 and 157. As is logical,Stigler concludes that “Clark’s theory of capital is fundamentallysound, in the writer’s opinion” (p. 314). Stigler fails to realize that amythical, abstract fund which replicates itself leaves no room for entrepreneurs,since all economic events recur again and again withoutchange. However in real life capital only retains its productive capacitythrough concrete human actions regarding all aspects of investing,depreciating and consuming specific capital goods. Such entrepreneurialactions may be successful, but they are also subject to error.11 Eugen von Böhm-Bawerk, “Professor Clark’s Views on the Genesis ofCapital,” Quarterly Journal of Economics IX (1895): 113–31, reprinted on pp.131–43 of Classics in Austrian Economics, Kirzner, ed., vol. 1. Böhm-Bawerk,in particular, predicted with great foresight that if Clark’s staticmodel were to prevail, the long-discredited doctrines of underconsumptionwould revive. Keynesianism, which in a sense stemmed from Marshall’sneoclassical theories, is a good example:When one goes with Professor Clark into such an account ofthe matter, the assertion that capital is not consumed is seento be another inexact, shining figure of speech, which mustnot be taken at all literally. Any one taking it literally falls intoa total error, into which, for sooth, science has already fallenonce. I refer to the familiar and at one time widely disseminateddoctrine that saving is a social evil and the class of