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

A Critique of Monetarist and Keynesian Theories 541precisely predict the course of events. 46 Defenders of thishypothesis fail to realize that, as Mises correctly explained, theconcept of neutral money is a contradiction in terms:The notion of a neutral money is no less contradictory thanthat of a money of a stable purchasing power. Money withouta driving force of its own would not, as people assume,be a perfect money; it would not be money at all. 47Under these circumstances it is not surprising that newclassical economists lack a satisfactory theory of the cycle, asdid their monetarist predecessors, that their only explanationfor the cycle is based on mysterious, unpredictable, realshocks, 48 and that they are ultimately incapable of explaining46 See Robert E. Lucas’s, refined and concise exposition in his “NobelLecture: Monetary Neutrality,” Journal of Political Economy 104, no. 4(August 1996): 661–82. Lucas has described cycles as the real results ofmonetary shocks unanticipated by economic agents. Consequently variousauthors have pointed out supposed similarities between the theoristsof the Austrian School and those of new classical economics. Inview of the fact that new classical economists lack a capital and malinvestmenttheory, and that Austrians consider the equilibrium model,maximizing representative agent and aggregates their new classicaleconomist colleagues use unrealistic and/or meaningless, we may reasonablyconclude that the “similarities” are more apparent than real. SeeRichard Arena, “Hayek and Modern Business Cycle Theory,” in Moneyand Business Cycles: The Economics of F.A. Hayek, M. Colonna and H.Hagemann, eds., vol. 1, chap. 10, pp. 203–17; see also Carlos UsabiagaIbáñez and José María O’Kean Alonso, La nueva macroeconomía clásica(Madrid: Ediciones Pirámide, 1994), pp. 140–44. A detailed analysis ofthe profound differences between the Austrian approach and the neoclassicalperspective, which constitutes the microeconomic basis forLucas’s views, appears in Huerta de Soto, “The Ongoing Methodenstreitof the Austrian School”; see also Garrison, Time and Money, esp.chaps. 10–12.47 Mises, Human Action, p. 418. We must emphasize that Austrians donot consider money neutral even in the long term, since the productivestructure which remains following all of the readjustments credit expansionprovokes bears no resemblance to the one which would haveformed in the absence of inflation.48 See Finn E. Kydland and Edward C. Prescott, “Time to Build andAggregate Fluctuations,” Econometrica 50 (November 1982): 1345–70;