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

574 Money, Bank Credit, and Economic Cyclesproject, this occurrence is merely a concrete sign, in the contextof a particular production process, that this process hasbecome longer as a result of the rise in saving and the fall inthe interest rate. 90Therefore we must not be deceived by the “comparativestatic equilibrium analysis” carried out by neoclassical theoristswho, like Mark Blaug, consider that the reswitching controversysomehow refutes the Austrian theory of capital. 91 On thecontrary, we know that the real world Austrian theorists studyis one of continual change and that growth in voluntary savingalways causes, in prospective terms, a “lengthening” of theproductive structure, irrespective of whether techniqueswhich were only profitable at higher interest rates are readoptedin certain new investment processes. 92 From the pointof view of an individual actor or entrepreneur, once theprospective decision has been made to lengthen production90 O’Driscoll and Rizzo, The Economics of Time and Ignorance, p. 183.91 Mark Blaug mistakenly calls the reswitching theorem “the final nail inthe coffin of the Austrian theory of capital.” Blaug, Economic Theory inRetrospect, p. 552. Blaug fails to comprehend that once the objectivistremains Böhm-Bawerk brought to the Austrian theory of capital (theconcept of a measurable average production period) are eliminated andthe production process is viewed in strictly prospective terms, the Austriantheory of capital becomes immune to the attack of the reswitchingtheorists and is even strengthened by it. On this topic see Ludwig M.Lachmann, “On Austrian Capital Theory,” published in The Foundationsof Modern Austrian Economics, Edwin E. Dolan, ed. (Kansas City: Sheedand Ward, 1976), p. 150; see also Israel M. Kirzner, “Subjectivism,Reswitching Paradoxes and All That,” in Essays on Capital and Interest,pp. 7–10. Kirzner concludes thatwe should understand that comparing the complex, multidimensionalwaiting requirements for different techniques simplydoes not permit us to pronounce that one technique involvesunambiguously less waiting than a second technique. (p. 10)92 The chief inadequacy of the neo-Ricardian theory of reswitching is notonly that it rests on a comparative static equilibrium analysis whichdoes not entail a prospective approach to dynamic market processes,but also that it fails to identify the ultimate causes of the interest-ratevariations which provoke the supposed reswitching in the most profitabletechniques. An increase in saving (and thus a decrease in theinterest rate, other things being equal) may result in the replacement of