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

542 Money, Bank Credit, and Economic Cycleswhy such shocks recur regularly and consistently exhibit thesame typical features. 49 3CRITICISM OF KEYNESIAN ECONOMICSAfter our examination of monetarism, it seems appropriateto embark on a critical analysis of Keynesian theory. We havechosen this approach for two reasons. First, the “Keynesian revolution”erupted after old neoclassical monetarism (a mechanisticconception of the quantity theory of money, the lack of a capitaltheory, etc.) had gained a firm foothold. Second, nowadaysKeynesian economics has undoubtedly been pushed into thebackground with respect to the Monetarist School. Despite thesefacts, we must emphasize that from the analytical viewpoint weadopt in this book, i.e., that of the Austrian School, monetaristsand Keynesians use very similar approaches and methodologies.Like monetarists, Keynes held no capital theory to enablehim to understand the division of economic processes into productivestages and the role time plays in such processes. Furthermorehis macroeconomic theory of prices rests on such conceptsas the general price level, the overall quantity of money,and even the velocity of circulation of money. 50 Neverthelessand also “Business Cycles: Real Facts and Monetary Myth,” FederalReserve Bank of Minneapolis Quarterly Review 14 (1990): 3–18. Authors ofthese and the other explanations for the economic cycle which are notbased on the effects of credit expansion are obliged to acknowledge, atleast implicitly, that credit expansion is always a factor and is a necessaryelement in any explanation for the sustained growth of an expansionaryboom. See Mises, “The Fallacies of the Nonmonetary Explanationsof the Trade Cycle,” in Human Action.49 Furthermore if rational expectations theorists are right and any governmenteconomic measure is “useless,” what sense is there in adoptingexpansionary policies again and again? The answer lies in the (seeminglybeneficial) short-term effects, which always reverse, sabotagingthe economy in the medium and long term.50 John Maynard Keynes, The General Theory of Employment, Interest andMoney (London: Macmillan, 1936 and 1970), chap. 21, pp. 292–309. It is