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

A Critique of Monetarist and Keynesian Theories 543certain significant peculiarities of Keynesian thought warrantdiscussion.Before we begin, however, let us remember that Keynespossessed only a very limited knowledge of economics in general,and of the market processes of entrepreneurial coordinationin particular. According to F.A. Hayek, Keynes’s theoreticalbackground was limited almost exclusively to the work ofAlfred Marshall, and he was unable to understand economicsbooks written in foreign languages (with the possible exceptionof those in French). Hayek wrote:obvious in Keynes’s book, The General Theory, that his macroeconomictheory of prices is simply a variant of the monetarist conception. In hisbook Keynes makes the following explicit assertion:The Theory of Prices, that is to say, the analysis of the relationbetween changes in the quantity of money and changes in theprice-level with a view to determining the elasticity of pricesin response to changes in the quantity of money, must, therefore,direct itself to the five complicating factors set forthabove. (Keynes, The General Theory, pp. 296–97; italics areadded)The best modern exposition of Keynes’s theoretical framework is that ofRoger Garrison (Time and Money, chaps. 7–9), who shows that Keyneswas ultimately a socialist who did not believe in free markets for investment.Keynes himself acknowledged this fact when he wrote that histheories were “more easily adapted to the conditions of a totalitarianstate” (Collected Writings [London: Macmillan, 1973], vol. 7, p. xxvi).This statement appears in the prologue (which Keynes wrote on September7, 1936) to the German edition of The General Theory. The exactwords follow:Trotzdem kann die Theorie der Produktion als Ganzes, dieden Zweck des folgenden Buches bildet, viel leichter denVerhältnissen eines totalen Staates angepasst werden als dieTheorie der Erzeugung und Verteilung einer gegebenen,unter Bedingungen des freien Wettbewerbes und einesgrossen Masses von Laissez-faire erstellten Produktion. (SeeJohn Maynard Keynes, Allgemeine Theorie der Beschäftigung,des Zinses und des Geldes [Berlin: Dunker and Humblot, 1936and 1994], p. ix)Footnote 76 of this chapter contains Keynes’s explicit acknowledgementof his lack of an adequate theory of capital.