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

A Critique of Monetarist and Keynesian Theories 575plans (due to a rise in saving), all initial factors (land, labor, andexisting capital goods) are subjectively deemed to be “originalmeans of production” which merely determine the starting pointof the production process. It is therefore irrelevant whether or not thenew investment process incorporates techniques which, consideredindividually, may have been profitable at higher rates of interest. 93a certain technique (the Roman plow, for instance) by a more capitalintensiveone (the tractor). Even so, a subsequent drop in the interestrate may permit the reintroduction of the Roman plow in new productionprocesses formerly prevented by a lack of saving (in other words,the established processes are not affected and still involve the use oftractors). Indeed a new lengthening of production processes may giverise to new stages in agriculture or gardening that incorporate techniqueswhich, even assuming that production processes are effectivelylengthened, may appear less capital-intensive when considered separatelyin a comparative static equilibrium analysis.93 We must not forget that although neo-Ricardians may have been circumstantialallies to the Austrians in their criticism of the neoclassicaltrend, the neo-Ricardians’ stated objective is precisely to neutralize theinfluence (which is not yet strong enough, in our opinion) exerted oneconomics since 1871 by the subjectivist revolution Menger started. TheRicardian counterrevolution erupted with Piero Sraffa’s review ofHayek’s book, Prices and Production (see “Doctor Hayek on Money andCapital,” Economic Journal 42 [1932]: 42–53), as Ludwig M. Lachmannpoints out in his article, “Austrian Economics under Fire: The Hayek-Sraffa Duel in Retrospect,” printed in Austrian Economics: History andPhilosophical Background, Wolfgang Grassl and B. Smith, eds. (Londonand Sydney: Croom Helm, 1986), pp. 225–42. We should also mentionJoan Robinson’s work published in 1953 and devoted to criticizing theneoclassical production function (see Joan Robinson, Collected EconomicPapers [London: Blackwell, 1960], vol. 2, pp. 114–31). Of particular relevanceis chapter 12 of Piero Sraffa’s book, Production of Commodities byMeans of Commodities: Prelude to a Critique of Economic Theory (Cambridge:Cambridge University Press, 1960). The entire chapter deals with the“switch in methods of production.” On the neoclassical side, see thefamous article by Paul A. Samuelson, who declared his unconditionalsurrender to the Cambridge Switching Theorem. The article appeared inQuarterly Journal of Economics 80 (1966): 568–83, and was entitled “Paradoxesin Capital Theory: A Summing Up.” On this point another interestingresource is Geoffrey C. Harcourt’s book, Some Cambridge Controversiesin the Theory of Capital (Cambridge: Cambridge University Press,1972). Finally see also Ludwig Lachmann, Macroeconomic Thinking and theMarket Economy (London: Institute of Economic Affairs, 1973).