Prosperity and Depression.pdf

Chap. ;The Over-investment TheoriesA. The Monetary Over-investlJJcnt Theories§ 2. GENERAL CHARACTERISTICS AND THEORETICAL FOUNDATIONBankingThe theories of the following writers willnow be examined: F. A. HAYEK,1 F. MACHLUP"IsyJtem and L. MISES,8 L. ROBBINS,. W. ROPKE 6 andmoney supplY. R. STRIGL. 8 The explanation given by thesewriters of the upswing and of the down-turn(crisis) is fundamentally the same. Such differences as exist aremainly in. respect of amplifications in the later publications.Serious conflicts of opinion are to be found, on the other hand,in respect of the description and explanation of the downswingand the up-turn (revival). Professor ROPKE, in particular,dissents .strongly from the opinion of the other writers namedin the interpretation of the later phases of such prolongeddepressions as that of 1929-I 936. The writers ofthis group havethis in common with the purely monetary theory of Mr. HAWTREY.that they assume an elastic money supply. They argue that thecirculating medium consists. under modern conditions .primarilyof bank money (deposits), and that the banking system regulatesthe quantity of money by changing the discount rate and byconducting open-market operations. It has long been recognisedthat there is a complicated functional relationship between theinterest rate, changes in the quantity of money and the price level•.l Monetary Theory and the Trade Cycle, London, 1933 (translatedfrom the German). Prices and Production, London, 1931, enlargededition, 1934. See also his latest exposition, ft Preiserwartungen, monetareSchwankungen und Fehlinvestitionen" in N ationalokonomiskTidskrift, 1935 (translated into French : If Prevision de prix, perturbationsmonetaires et faux investissements" in Revue des Sciences eronomiques.1936).'BHrsenkredit, Industriekredit und Kapitalbildung. Vienna, 1931.I The Theory of Money and Credit. London, 1934 (translated fromthe German). Geldwertstabilisierung und Konjunkturpolitik, Jena, 19~8., The Great Depression, London, 1934.6 Crises and Cycles, London, 1936 (translated from the German)."Trends in German Business Cycle Policy", Economic Journal, September1933.• Kapital und Produktion, Vienna, 1934.