Friedrich August von Hayek · 1935
Hayek’s German essay reformulates monetary business-cycle theory around expectations and the compatibility of economic plans. Monetary disturbances can encourage investments whose completion requires resources consumers are unwilling to release from current consumption. Crisis exposes the conflict between production commitments and consumption intentions. The argument also questions aggregate capital concepts and identifies the formation of expectations as an unresolved theoretical problem.
The opening situates this inquiry within the development of economics. Progress toward explaining concrete events has not followed an orderly descent from general principles to particular applications:
Die Entwicklung der Nationalökonomie ist nicht der Systematik des Lehrbuches gefolgt, das vom allgemeinen zum speziellen Teil fortschreitet.
English translation: The development of economics has not followed the systematic arrangement of the textbook, which proceeds from the general to the special part.
Hayek rejects both abandoning general theory and applying simplified models prematurely. His objective is a framework capable of explaining different fluctuations, not merely a single historical pattern. This requires reconsidering the relation between equilibrium analysis and economic change.
Vor nicht langer Zeit habe ich noch geglaubt, dies am besten so formulieren zu sollen, dass die Konjunkturtheorie nach der wir suchten, organisch auf die bestehende Gleichgewichtstheorie aufgesetzt werden müsse.
English translation: Not long ago I still believed that this was best formulated by saying that the trade cycle theory we were seeking would have to be organically superimposed upon the existing theory of equilibrium.
This retrospective formulation signals a revision: business-cycle theory cannot simply be attached to an unchanged equilibrium framework. Equilibrium itself must clarify how decisions made through time relate to one another.
Dass diese Vorstellung von einem Gleichgewichtszusammenhang in der Vergangenheit keinen ganz unveränderlichen und auch nicht immer einen ganz klaren Inhalt gehabt hat, es ist wohl nicht zu bestreiten.
English translation: That this conception of an equilibrium interconnection has in the past had no wholly invariable, and also not always an entirely clear, content is surely not to be disputed.
Expectations become central to that clarification. Independent plans may be mutually compatible, or they may imply outcomes that cannot all occur. In the latter case, some expectations must be disappointed. Prices matter both as present exchange ratios and as guides to beliefs about future conditions and other people’s conduct.
Section III applies this distinction to crises. Entrepreneurial error alone explains too little: cycle theory must explain why many entrepreneurs make related mistakes. Hayek identifies misleading price signals as a possible common cause. Long-term investments are particularly vulnerable because initial commitments require later complementary investments, sometimes by other firms. Present interest rates and available finance can encourage expectations of continued access to the resources needed for completion. Although unexpected changes in saving could defeat such expectations, fluctuations in saving do not, for Hayek, provide an adequate independent explanation of crises.
Section IV supplies the monetary mechanism. Investment finance need not correspond to current saving: monetary changes can expand available funds without a matching willingness to postpone consumption. The resulting interest rate encourages commitments to more distant output than consumers’ plans warrant. An equilibrium rate would instead reconcile investment decisions with consumption intentions.
Credit-financed investment raises money incomes without necessarily increasing immediately available consumption goods. Spending those incomes strengthens consumer-goods producers’ competition for productive resources. Sustaining investment expansion consequently requires progressively greater credit expansion. When consumption demand gains relative to investment funds, the incompatibility of the underlying plans becomes apparent.
Section V explains how capital shortage can coexist with unusable capital goods. Rising factor costs and interest rates obstruct completion and diminish demand for intermediate products. The difficulty is not simply an insufficient homogeneous fund, but a mismatch between available resources and the requirements of existing commitments. Hayek relates this account to earlier crisis theories while criticizing imprecise distinctions among forms of capital.
Section VI extends the conceptual revision. Saving and net investment depend on distinctions between income and capital, replacement and addition; these require an account of capital maintenance under changing conditions. Hayek therefore shifts attention from aggregate capital quantities to the timing of production and consumption. Conflict arises when consumers demand goods sooner than entrepreneurs’ largely irreversible commitments permit. An absolute decline in capital is unnecessary.
The conclusion presents the reformulation as provisional. Responding to Myrdal, Hayek stresses anticipations while acknowledging that their formation remains insufficiently explained. The essay connects monetary disturbances with heterogeneous investment commitments and intertemporal coordination: aggregate saving–investment equality alone cannot establish the compatibility of economic plans.
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