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

546 Money, Bank Credit, and Economic Cyclescapital goods. Therefore it is not surprising that the absence ofan elaborate capital theory in Marshallian economics andKeynes’s ignorance of Austrian contributions led Keynes tocriticize all classical economists for assuming that “supplymust always automatically create its own demand.” Indeed,according to Keynes, classical economistsare fallaciously supposing that there is a nexus which unitesdecisions to abstain from present consumption with decisionsto provide for future consumption; . . . whereas themotives which determine the latter are not linked in anysimple way with the motives which determine the former. 55Although this assertion may be justified with respect tothe neoclassical economics of Keynes’s time, it in no wayapplies to Austrian economics, if we consider the level ofdevelopment Austrians had already reached with their theoryof capital and cycles when The General Theory was published.Thus Keynes was mistaken when he called Hayek a neoclassicalauthor. 56 Hayek came from a subjectivist tradition whichdiffered sharply from Marshall’s neoclassical background.Furthermore, aided by Mises’s subjective theory of money,capital and cycles (a theory typically Austrian), he had alreadyclosely analyzed the extent to which Say’s law is temporallyunsound and had studied the disruptive effect on the economicsystem of regular, credit-related shocks.KEYNES’S THREE ARGUMENTS ON CREDIT EXPANSIONKeynes conspicuously attempted to deny bank creditplays any role in disrupting the relationship between saving55 Keynes, The General Theory, p. 21.56 John Maynard Keynes, The General Theory and After, part 2: Defence andDevelopment, in The Collected Writings of John Maynard Keynes, vol. 14(London: Macmillan, 1973), pp. 24 and 486. Here Keynes refers to“recent figures like Hayek, whom I should call ‘neoclassicals’” (p. 24)and to “the neo-classical school of Professor Hayek and his followers”(p. 486).