Review of Austrian Economics, Volume 8 by Murray N. Rothbard

Author:Murray N. Rothbard
Language: eng
Format: mobi
ISBN: 9781610165440
Publisher: Ludwig von Mises Institute
Published: 1994-05-09T05:00:00+00:00

The Individualistic Analysis of Process

Most economists would probably agree that the ideal analysis of monetary change is to trace its sequential effects on particular individuals. This ideal method was introduced by Cantillon in 1755; one of its virtues is the absence of any “dichotomy” between monetary and value theory, since the latter provides the analytical link between each individual’s new alternatives and his new behavior. But our inability to identify particular individuals and to be certain of their actions prevents us from attaining this ideal. To some extent “schools” can be identified according to how they accommodate these problems of incomplete information.

One accommodation is to argue that consideration of the details of the process can be dismissed because they are unpredictable, random, and “average out,” with no measurable effect on empirical relationships among aggregates. Since the analysis of those individual choices is the province of value theory, this avenue is risky: It makes possible a dichotomy in which value and monetary theory are at best isolated and at worst contradictory. Dichotomization is the most serious criticism of a monetary theorist, so it must be levelled with caution.5

Neither Keynes nor the Austrians took this route. They analyzed the process differently, but neither undervalued its significance. Indeed, Marget recognized this virtue in Keynes. Citing two writers who are praised by Austrians—e.g., by Hayek ([1935] 1967, pp. 8, 10) and Mises ([1952] 1971, p. 139)—for this very reason, Marget identified “the emphasis in the Treatise” as “a tribute. . . . to those writers, from Cantillon through Cairnes to writers of our own day, who . . . provided contributions to an understanding of the mechanism of price-change”(1938, p. 172). The fault that Marget found with Keynes’s application of the method was chiefly his imprudent aggregation (different, but equally imprudent, in the Treatise and the General Theory). When Keynes attempted to differentiate his products6 by charging that his predecessors failed to recognize the importance of process, Marget sprang to their defense.

Marget’s use of the method of the individualistic analysis of process is most clear in his extended rebuttal, in Prices II, of Keynes’s charge that his predecessors dichotomized. In three chapters Marget (1942, pp. 221–403) examined the effects of money on ordinary Marshallian demand curves (“Particular Demand Curves and the Determination of Money Prices”), their role in mutually determining flows of money and flows of goods (“Stream Equations and the Price System”), and the significance of these flows in modern monetary dynamics (“Stream Equations and Process Analysis”). Later (ibid., pp. 521–624), he paralleled them with chapters on supply: “Elasticity of Supply and the Structure of Money Prices” and “Particular Supply Curves, Stream Equations, and the Determination of Money Prices.” He endeavored to show not only that the “value theory” of dynamic monetary processes had dominated pre-Keynesian theory but that its application of the method was superior to those offered by Keynes himself.

It is impossible to discuss sequential processes without introducing time. Ever since Menger ([1871] 1981, pp. 67–71 et passim) an emphasis on

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