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

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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.
522 Money, Bank Credit, and Economic Cyclesproduction process. Individuals’ different plans regarding thespecific capital goods they may decide to create and employ intheir production processes are not even considered. In shortClark and Knight assume that the course of events flows “byitself” and that the future is an objective given which followsa set pattern and is not influenced by individual agents’microeconomic actions and decisions, which they deem fullypredetermined. Kirzner concludes that the view of Clark andKnight ignores “the planned character of capital goods maintenance,”adding that their model requires acceptance of thenotion thatthe future will take care of itself so long as the present“sources” of future output flows are appropriately maintained.. . . The Knightian approach reflects perfectly theway in which this misleading and unhelpful notion of“automaticity” has been developed into a fully articulatedand self-contained theory of capital. 18A CRITIQUE OF THE MECHANISTIC MONETARIST VERSIONOF THE QUANTITY THEORY OF MONEYMonetarists not only overlook the role time and stagesplay in the economy’s productive structure. They also accepta mechanistic version of the quantity theory of money, a versionthey base on an equation which supposedly demonstratesthe existence of a direct causal link between the totalquantity of money in circulation, the “general level” of pricesand total production. The equation is as follows:MV = PTwhere M is the stock of money, V the “velocity of circulation”(the number of times the monetary unit changes hands onaverage in a certain time period), P the general price level, andT the “aggregate” of all quantities of goods and servicesexchanged in a year. 1918 Kirzner, An Essay on Capital, p. 63; italics deleted.19 This is the transaction version of the equation of exchange. Accordingto Irving Fisher (The Purchasing Power of Money: Its Determination and
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MONEY,BANK CREDIT,ANDECONOMIC CYCLE
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CONTENTSPREFACE TO THE THIRD ENGLIS
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xiiMoney, Bank Credit, and Economic
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xivMoney, Bank Credit, and Economic
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xviMoney, Bank Credit, and Economic
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xviiiMoney, Bank Credit, and Econom
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PREFACE TO THESECOND ENGLISH EDITIO
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Preface to the Second English Editi
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PREFACE TOTHE THIRDSPANISH EDITIONI
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Preface to the Third Spanish Editio
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xliiMoney, Bank Credit, and Economi
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INTRODUCTIONThe economic analysis o
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Introductionxlviiand foreign exchan
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IntroductionxlixThis book comprises
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Introductionrecurrent phenomenon. I
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Introductionand Professors Hans-Her
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2 Money, Bank Credit, and Economic
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4THE CREDITEXPANSION PROCESSThis ch
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6ADDITIONALCONSIDERATIONSON THE THE
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Additional Considerations on the Th
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A Critique of Monetarist and Keynes
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8CENTRAL AND FREEBANKING THEORYThis
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9A PROPOSAL FOR BANKINGREFORM: THE
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A Proposal for Banking Reform:The T
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BIBLIOGRAPHYAbrams, M.A., Money in
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Bibliography 815Bajo Fernández, M.
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Bibliography 817Borch, K.H., Econom
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Bibliography 819Coronel de Palma, L
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Bibliography 821N. Durlauf and Lawr
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Bibliography 823Galiani, F., Della
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Bibliography 825Graham, F.D., “Pa
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Bibliography 827——, Prices and
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Bibliography 829translation by N. K
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Bibliography 831——, “Keynes
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Bibliography 833Russian edition by
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Bibliography 835Keeler, J., “Empi
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Bibliography 837——, “On Crisi
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Bibliography 839——, “Professo
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Bibliography 841Miller, H.E., Banki
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Bibliography 843Neira, Alonzo, M.A.
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Bibliography 845Raguet, C., “Repo
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Bibliography 847——, “The Myth
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Bibliography 849——, “Banking
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Bibliography 851M.C. Marcuzzo (Chel
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Bibliography 853——, “A Critiq
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Bibliography 855Walker, A., The Sci
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INDEX OF SUBJECTSAccelerator princi
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Index of Subjects 859Banking reform
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Index of Subjects 861objection to t
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Index of Subjects 863Goal, concept
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Index of Subjects 865See also Fract
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Index of Subjects 867Plan, definiti
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Index of Subjects 869Tragedy of the
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