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

A Critique of Monetarist and Keynesian Theories 565CRITICISM OF THE “ACCELERATOR” PRINCIPLEOur theory on the impact of credit expansion on the structureof production rests on a capital theory we examined indetail in chapter 5. According to this theory, a healthy, permanent“lengthening” of the productive structure is contingenton a prior increase in saving. Therefore we must criticize theso-called “accelerator principle,” developed by the KeynesianSchool. Those who accept this principle assert that anyincrease in consumption leads to a more-than-proportionalincrease in investment, which is contrary to what our theorysuggests.In fact, according to the accelerator principle, a rise in thedemand for consumer goods and services provokes an exaggeratedupsurge in the demand for capital goods. The argumentcenters around the notion that a fixed relationship existsbetween the output of consumer goods and the number ofmachines necessary to produce them. Thus any rise in thedemand for consumer goods and services causes a proportionalincrease in the number of machines necessary to producethem. When we compare this new number with that normallydemanded to compensate for the customary depreciation ofthe machines, we see an upturn in the demand for capitalgoods which is far more than proportional to the rise in thedemand for consumer goods and services. 80on the specific circumstances of the 1930s. Today so-called “new Keynesianmacroeconomists” (Stiglitz, Shapiro, Summers, Romer, etc.) focuson the analysis of the real and monetary rigidities they observe in themarket. However they still do not understand that such rigidities andtheir chief effects appear and worsen precisely as a result of creditexpansion and government intervention, nor do they recognize that certainspontaneous, microeconomic forces exist in the market which, inthe absence of government intervention, tend to reverse, coordinate,and resolve maladjustments by a process of crisis, recession, and recovery.On the new Keynesians, see also upcoming footnote 94.80 Samuelson provides the following example to illustrate the acceleratorprinciple:Imagine a typical textile firm whose stock of capital equipmentis always kept equal to about 2 times the value of its