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

A Critique of Monetarist and Keynesian Theories 525More recently other monetarists have also revealed theirlack of an adequate capital theory and have thus expressed thesame bewilderment as Hawtrey with respect to studies on theeffects of monetary expansion on the productive structure. MiltonFriedman and Anna J. Schwartz, in reference to the possibleeffects of money on the productive structure, state:We have little confidence in our knowledge of the transmissionmechanism, except in such broad and vague terms as toconstitute little more than an impressionistic representationrather than an engineering blueprint. 22Furthermore, surprisingly, these authors maintain that noempirical evidence exists to support the thesis that creditexpansion exerts an irregular effect on the productive structure.Therefore they disregard not only the theoretical analysis presentedin detail here, but also the different empirical studiesreviewed in the last chapter. Such studies identify typical,Schicksal der Goldwährung,” printed in the Deutsche Volkswirt 20 (February1932): 642–45, and no. 21, pp. 677–81; English translation entitled“The Fate of the Gold Standard,” chapter 5 of Money, Capital and Fluctuations,pp. 118–35) in which he strongly criticizes Hawtrey for being,along with Keynes, one of the key architects and defenders of the programto stabilize the monetary unit. According to Hayek, such a program,based on credit expansion and implemented in an environmentof rising productivity, will inevitably cause profound discoordinationin the productive structure and a serious recession. Hayek concludesthatMr. Hawtrey seems to be one of the stabilization theoristsreferred to above, to whose influence the willingness of themanagements of the central banks to depart more than everbefore from the policy rules traditionally followed by suchbanks can be attributed. (Hayek, Money, Capital and Fluctations,p. 120)22 See Milton Friedman, The Optimum Quantity of Money and Other Essays(Chicago: Aldine, 1979), p. 222, and the book by Milton Friedman andAnna J. Schwartz, Monetary Trends in the United States and United Kingdom:Their Relation to Income, Prices and Interest Rates, 1867–1975(Chicago: University of Chicago Press, 1982), esp. pp. 26–27 and 30–31.The mention of “engineering” and the “transmission mechanism”betrays the strong scientistic leaning of these two authors.