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

558 Money, Bank Credit, and Economic CyclesCRITICISM OF THE KEYNESIAN MULTIPLIERKeynes commits such errors because he lacks a capital theoryto help him grasp how saving converts into investmentthrough a series of microeconomic processes he overlooksentirely. Therefore it is not surprising that Keynes is simplyincapable of understanding the Hayekian argument, and that,when referring to the schools of economic thought which, likethe Austrian School, analyze the effects credit expansionexerts on the productive structure, he concludes: “I can makeI don’t think these pages (192–93) are at all a fair account ofHayek’s own exposition. In his own queer language he issaying that the fall in the rate of interest will so muchincrease the demand price for machines (in spite of the fallin the price of their products) as to make it profitable to producemore machines. (See the letter from Denis H. Robertsonto John Maynard Keynes dated February 3, 1935 andreprinted on pp. 496ff. of volume 13 of The Collected Writingsof John Maynard Keynes. The above excerpt appears on page504)In his correspondence with Robertson (February 20, 1935), Keynes actuallyadmitted that in the above-mentioned paragraphs of The GeneralTheory he misinterpreted Hayek’s words:Thanks for the reference to Hayek which I will study. I do notdoubt that Hayek says somewhere the opposite to what I amhere attributing to him. (Ibid., p. 519)Nonetheless Keynes lacked sufficient intellectual honesty to correct themanuscript prior to its definitive publication in 1936. Ludwig M. Lachmannalso comments on the criticism Keynes directs at Mises andHayek on pages 192 and 193 of The General Theory, where Keynes concludesthat “Professor von Mises and his disciples have got their conclusionsexactly the wrong way round.” Lachmann responds:In reality, however, the Austrians were merely followingWicksell in drawing a distinction between the “natural rate ofinterest” and the money rate, and Keynes’ own distinctionbetween marginal efficiency of capital and the latter is exactlyparallel to it. The charge of simple confusion of terms isgroundless. (Ludwig M. Lachmann, “John Maynard Keynes:A View from an Austrian Window,” South African Journal ofEconomics 51, no. 3 (1983): 368–79, esp. pp. 370–71)