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

570 Money, Bank Credit, and Economic Cyclesheterogeneous magnitudes is absurd and makes entrepreneurialeconomic calculation utterly impossible. Obviously, ifthe price of capital goods begins to increase, entrepreneurialdecisions will not mechanically manifest themselves in “fixedproportions” of inputs. Instead entrepreneurs will carefullymonitor the evolution of costs to determine the extent towhich production will continue at the old proportions, or theywill start using a higher proportion of alternative factors,specifically labor. 83Seventh, William Hutt has shown that the entire acceleratortheory rests on the choice of a purely arbitrary time period ofanalysis. 84 Indeed, why calculate the supposed relative increasein the demand for capital goods based on a one-year period?The shorter the time period chosen, the more “amplified” thesupposed automatic rise in the demand for machines, anupsurge which results from any fixed ratio between the outputof consumer goods and services and capital goods. However ifwe consider a longer time period, such as the estimated life ofthe machine, the marked oscillations which appear to arisefrom the accelerator principle disappear altogether. In addition,this long-term perspective is always the one considered byentrepreneurs. In order to be able to momentarily raise outputif necessary in the future, they usually increase their demandfor capital goods more than would be strictly necessary to producea certain volume of consumer goods. Thus when we takeinto account society as a whole and entrepreneurial expectations,increases in the demand for equipment and machines inthe stages closest to consumption are much more modest thanthe doctrine of the accelerator principle indicates.In short the accelerator principle rests on fallacious,mechanistic reasoning which excludes the most elementaryprinciples of the market process, specifically the nature ofentrepreneurship. The doctrine ignores the functioning and83 See, for instance, Jeffrey M. Herbener’s interesting article, “The Mythsof the Multiplier and the Accelerator,” chapter 4 of Dissent on Keynes, pp.63–88, esp. pp. 84–85.84 William H. Hutt, The Keynesian Episode: A Reassessment (Indianapolis,Ind.: Liberty Press, 1979), pp. 404–08.