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

A Critique of Monetarist and Keynesian Theories 521the two is composed precisely of the temporal plans of creativeentrepreneurs who, by definition, are excluded from theWalrasian model of the economic system, the model Clark andKnight incorporate into their theory of capital. 14Ludwig von Mises later joined the debate, showing hisdisapproval of the “new chimerical notions such as the ‘selfperpetuatingcharacter’ of useful things.” 15 Mises echoesBöhm-Bawerk’s 16 views when he points out that such notionsare eventually put forward to justify doctrines based on themyth of “underconsumption” and on the supposed “paradoxof thrift,” and to thus provide a theoretical basis for economicpolicies which foster increased consumption to the detrimentof saving. Mises explains that the entire current structure ofcapital goods is the result of concrete entrepreneurial decisionsmade in the past by real people who on specific occasionsopted to invest in certain capital goods, and on others, toreplace them or group them differently, and on yet others toeven relinquish or consume capital goods already produced.Hence “we are better off than earlier generations because weare equipped with the capital goods they have accumulatedfor us.” 17 Incredibly, it appears this theoretical principle andothers equally obvious have yet to sink in.In his more recent book, An Essay on Capital, Israel M.Kirzner emphasizes that Clark and Knight’s concept of capitalrules out human, entrepreneurial decision-making in the14 The negative consequences of disregarding the time factor and thestages involved in any action process were stressed by Hayek as early as1928, when he pointed out that,[I]t becomes evident that the customary abstraction from timedoes a degree of violence to the actual state of affairs whichcasts serious doubt on the utility of the results therebyachieved. (F.A. Hayek, “Intertemporal Price Equilibrium andMovements in the Value of Money,” originally published inGerman in 1928, chapter 4 of Money, Capital and Fluctuations,p. 72)15 Mises, Human Action, p. 848.16 See footnote 11 above.17 Mises, Human Action, p. 492.