Critique of Austrian Economics
Part II: The Legacy of Ludwig von Mises
Section X: The Severity and Recalcitrance of Depressions Explained
Of Mises, Hayek, Keynes and Kirzner, only Mises is close to this author’s position that the severity and recalcitrance of recessions is explained by the wastage of capital. Hayek describes a rather mechanical shuffling of wealth back and forth between the higher and lower stages of production. Keynes conjures up animal spirits to explain something that he clearly does not understand. And Kirzner is just expressing the blind faith in the market and denials of depression that make the so-called classicals such an easy straw man for Econ. 101 students to slay. But Mises was adamant that his theory was about malinvestment, not overinvestment, and made the quality of loans central to his thesis. The principle difference between Mises and Hayek is that Mises focuses almost entirely on malinvestment and capital consumption (i.e. waste) during the boom period. There is nothing in Hayek’s triangle about the quality of investments, only about the relative quantity allocated to the several different stages. Hayek and his followers focus on the lengthening and shortening of the period of production and on talking around the fact that they do not know how to measure it.22
22 Mises makes only one passing mention of the period of production (1966, p. 556).
