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

560 Money, Bank Credit, and Economic Cyclesthe relationships between the propensity to consume andthe multiplier, which is destined to give shape and strengthto those observations, turns out to be not an empirical statementwhich tells us something interesting about the realworld, but a barren algebraic relation which no appeal tofacts can either confirm or disprove. 74Hayek, in his detailed critique of both volumes ofKeynes’s A Treatise on Money (1930), accuses Keynes ofentirely ignoring the theory of capital and interest, particularlythe work of Böhm-Bawerk and the other theorists of theAustrian School in this regard. 75 According to Hayek,Keynes’s lack of knowledge in this area accounts for the factthat he overlooks the existence of different stages in the productivestructure (as Clark had done and Knight later would)and that he ultimately fails to realize that the essential decisionfacing entrepreneurs is not whether to invest in consumer74 Gottfried Haberler, “Mr. Keynes’ Theory of the ‘Multiplier’: AMethodological Criticism,” originally published in the Zeitschrift fürNationalökonomie 7 (1936): 299–305, and reprinted in English as chapter23 of the book Selected Essays of Gottfried Haberler, Anthony Y. Koo, ed.(Cambridge, Mass.: The MIT Press, 1985), pp. 553–60, and esp. pp.558–59. It is interesting to note that Hawtrey, a monetarist, was a forerunnerof Keynes in the development of the multiplier theory. SeeRobert B. Dimand’s account in “Hawtrey and the Multiplier,” History ofPolitical Economy 29, no. 3 (Autumn, 1997): 549–56.75 Hayek wrote three articles in which he criticizes the monetary theoriesKeynes includes in his book, A Treatise on Money. The articles are:“Reflections on The Pure Theory of Money of Mr. J.M. Keynes (1),” publishedin Economica 11, no. 33 (August 1931): 270–95; “A Rejoinder to Mr.Keynes,” pp. 398–403; and finally, “Reflections on The Pure Theory ofMoney of Mr. J.M. Keynes (continued) (2),” also published in Economica12, no. 35 (February 1932): 22–44. These articles and Keynes’s responsesto them appear in Friedrich A. Hayek: Critical Assessments, John CunninghamWood and Ronald N. Woods, eds. (London: Routledge, 1991),pp. 1–86 and also in The Collected Works of F.A. Hayek, vol. 9: ContraKeynes and Cambridge: Essays, Correspondence (London: Routledge, 1995).In the first of these articles (Wood and Woods, eds., p. 7), Hayek concludesthat Keynes’s main problem is methodological and stems fromthe fact that the macroeconomic aggregates which form the basis of hisanalysis conceal from him the microeconomic processes essential tounderstanding changes in the productive structure.