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

536 Money, Bank Credit, and Economic Cyclesto recognize it as an acceptable explanation. 40 Furthermore forexactly the same reasons the economic theory of socialism hasproven it is impossible for a hypothetical benevolent dictatorscientistto obtain all practical information concerning his subjects,it is equally impossible for each economic agent to obtainall practical information concerning his fellow citizens, and allscientific knowledge available at any one time. 41On the other hand, even if, for the sake of argument, weallow that economic agents can obtain the relevant informationand hit the mark with respect to the theoretical explanationof the cycle (unanimously understanding the essentialelements of our circulation credit theory), “rational expectations”theorists are still incorrect when they conclude thatgovernment fiscal and monetary policies can produce no realconsequences. This is the strongest argument against the theoryof rational expectations. Even if entrepreneurs have “perfect”knowledge of events to come, they cannot shy awayfrom the effects of an expansion of credit, since their very40 As Leijonhufvud eloquently states:When theorists are not sure they understand, or cannot agree,it is doubtful that they are entitled to the assumption that privatesector agents understand and agree. (Axel Leijonhufvud,“What Would Keynes Have Thought of Rational Expectations?”UCLA Department of Economics Discussion PaperNo. 299 [Los Angeles: University of California, Los Angeles,1983], p. 5)41 This argument parallels the one we employ in Socialismo, cálculoeconómico y función empresarial, to explain the theoretical impracticabilityof socialism. This reasoning is based on the radical difference betweenpractical (subjective) information or knowledge and scientific (objective)information or knowledge. Therefore rational expectations theoristscommit the same type of error as the neoclassical theorists whosought to prove socialism was possible. There is only one difference:instead of assuming a scientist or dictator can obtain all practical informationconcerning his subjects, new classical economists start from thepremise that the subjects themselves are capable of obtaining all relevantinformation, both practical (concerning the rest of the economicagents), and scientific (concerning the valid theories on the evolution ofthe cycle). See Huerta de Soto, Socialism, Economic Calculation and Entrepreneurship,pp. 20–26 and 49–77.