[Reading Hayek's] Reflections on the Pure Theory of Money of Mr. J.M. Keynes

자료  (html): http://mises.org/daily/2474 ; 자료(pdf): link 1, link 2

지은이: Friedrich A. Hayek
출처: Economica, No. 33. (Aug. 1931), pp. 270-295; Economica, No. 35. (Feb. 1932), pp. 22-44.

※ 하이에크의 글에는 논증을 한 단계 한 단계 밟아가려면 그 각 단계마다 논증의 매듭을 어떻게 지을 것이며 그 각 단계의 결과를 바탕으로 어떻게 다음 단계로 나아갈 것인가 하는 문제를 고민을 통해 정제한 맛이 전혀 없다. 논증의 각 단계를 계속 바뀌어가는 '무대'에 비유한다면, 배우와 관객이 만나는 데 꼭 필요한 소품(가정, 명제, 중간 결론 등)을 해당 '무대'의 가장 중요한 위치에 배치하는 데 무관심하다. 모든 무대가 꼭 필요하지 않은 너저분한 소품들까지 전부 뒤섞어놓은 어지러운 장터 같다.

차례:

Part I : 1. Introduction | 2. Keynes's History of Monetary Theory | 3. Keynes's Analysis of Profit | 4. Keynesian Confusion on Investment | 5. The Process of Investment | 6. A Picture of the Process Itself | 7. Static Model of a Dynamic Process | 8. The Circulation of Money | 9. Changes in the Price Level | 10. Explanatory Tools

Part II : 11. Keynes's Theory of the Bank Rate | 12. Lack of a Satisfactory Theory | 13. Keynes's Peculiar Concept of Saving | 14. Other Causes of Divergence | 15. Velocity of Circulation | 16. "The Gibson Paradox" | 17. Explanation of the Credit Cycle | 18. Short- and Long-run Analysis | Notes
 

* * *

※ excerpts: Part 1 (출처: Economica, No. 33. (Aug. 1931), pp. 270-295 ) 

1. Introduction

( ... ... ) It is only with extreme caution and the greatest reserve that one can attempt to criticise, because one can never be sure whether one has understood Mr. Keynes aright.

( ... ) I propose in these reflections to neglect for the present the applications, which fill almost the whole of Volume II, and to concentrate entirely on the imperative task of examining these central difficulties. I address myself expressly to expert readers who have read the book in its entirely.[2]

[2] If at any point my own analysis seems to English readers to take too much for granted, perhaps I may be permitted to refer to my Prices and Production in Chapters II and III of which I have attempted to provide a broad outline of the general theoretical considerations which seem to me indispensable in any approach to this problem.

2. Keynes's History of Monetary Theory : ( ... ... )

3. Keynes's Analysis of Profit

  It is in Books III and IV that Mr. Keynes proposes “a novel means of approach to the fundamental problem of monetary theory” (Preface). He begins with an elaborate catalogue of the terms and concepts he wants to use. And here, right at the beginning, we encounter a peculiarity which is likely to prove a stumbling-block to most readers, the concept of entrepreneur's profits. These are expressly excluded from the category of money income, and form a separate category of their own. I have no fundamental objection to this somewhat irritating distinction, and I agree perfectly when he defines profits by saying that “when profits are positive (or negative) entrepreneurs willㅡin so far as their freedom of action is not fettered by existing bargains with the factors of production which are for the time being irrevocableㅡseek to expand (or curtail) their scale of operations” and hence depicts profits as the main-spring of change in the existing economic system.

• But I cannot agree with his explanation of why profits arise, nor with his implication that only changes in “total profits” in his sense can lead to an expansion or curtailment of output. For [:]
• profits in his view are considered as a “purely monetary phenomenon” in the narrowest sense of that expression. 
• The cause of the emergence of those profits which are “the main-spring of change” is not a “real” factor, not some maladjustment in the relative demand for and supply of cost goods and their respective products (i.e. of the relative supply of intermediate products in the successive stages of production) and, therefore, {not} something which could arise also in a barter economy, but simply and solely spontaneous changes in the quantity and direction of the flow of money. 
• Indeed, throughout the whole of his argument the flow of money is treated as if it were the only independent variable which could cause a positive or negative difference between the prices of product and their respective costs. The structure of goods on which this flow impinges is assumed to be relatively rigid. In fact, of course, the original cause may just as well be a change in the relative supply of these classes of goods, which then, in turn, will affect the quantities of money expended on them.[3]

[3] ( ... ... )

  ( ... ... ) His explanation seems to flow necessarily from the truism that profits can arise only if more money is received from the sale of goods than has been expended on their production. But, obvious as this is, the conclusion drawn from it becomes a fallacy if only the prices of finished consumption goods and the prices paid for the factors of production are contrasted. And, with the quite insufficient exception of new investment goods, this is exactly what Mr. Keynes does.As I shall repeatedly have occasion to point out, [:]

• (1) he treats the process of the current output of consumption goods as an integral whole in which only the prices obtained at the end for the final products and the prices paid at the beginning for the factors of production have any bearing on its profitableness. 
• (2) He seems to think that sufficient account of any change in the relative supply (and therefore in the value) of intermediate products in the successive stages of that process is provided for by his concept of (positive or negative) investment, i.e. the net addition to (or diminution from) the capital of the community. 
• (3) But this is by no means sufficient if only the total or net increment (or decrement) of investment goods in all stages is considered and treated {only} as a whole, and the possibility of fluctuations between these stages is neglected; yet this is just what Mr. Keynes does.

The fact that his whole concept of investment is ambiguous, and that its meaning is constantly shifting between the idea of any surplus beyond the reproduction of the identical capital goods which have been used up in current production and the idea of any addition to the total value of the capital goods, renders it still less adequate to account for that phenomenon. [※ 자본재 소모분 이상의 자본재 생산 vs 자본재 총가치의 증가. 케인스의 투자 개념이 이 둘 사이에 왔다 갔다 한다 ]

  When I come to the concept of investment I shall quote evidence of this confusion. For the present, however, let us assume that the concept of investment includes (...) only the net addition to the value of all the existing capital goods. [:]

• If we take a situation where, according to that criterion, no investment takes place, and therefore the total expenditure on the factors of production is to be counted as being directed towards the current production of consumers' goods, it is quite conceivable thatㅡto take an extreme caseㅡthere may be no net difference between the total receipts for the output and the total payments for the factors of production, and no net profits for the entrepreneurs as a whole, because profits in the lower stages of production are exactly compensated by the loss in the higher stages. [※ 투자가 없고 소비재만 생산한다고 가정. because 이하의 이유로 인해 총산출액과 총요소비용이 일치해 이윤이 전혀 발생하지 않는 (극단적인 경우의) 상황도 생각해볼 수 있다 ]
• Yet, in that case, it will not be profitable for a time for entrepreneurs as a whole to continue to employ the same quantity of factors of production as before. We need only consider the quite conceivable case that in each of the successive stages of production there are more intermediate products than are needed for the reproduction of the intermediate products existing at the same moment in the following stage, so that in the lower stages (i.e., those nearer consumption) there is a shortage, and in the higher stages there is an abundance, as compared with the current demand for consumers' goods. 
• In this case, all the entrepreneurs in the higher stages of production will probably make losses; but even if these losses were exactly compensated, or more than compensated, by the profits made in the lower stages, in a large part of the complete process necessary for the continuous supply of consumption goods it will pay to employ all the factors of production available. And while the losses of the producers of those stages are balanced by the profits of those finishing consumption goods, the diminution of their demand for the factors of production cannot be made up by the increased demand from the latter because these[= increased demand by consumption-goods producers] need mainly semi-finished goods and can use labor only in proportion to the quantities of such goods which are available in the respective stages. 
• In such a case, profits and losses are originally not the effect of a discrepancy between the receipts for consumption goods and expenditure on the factors of production, and therefore they are not explained by Mr. Keynes's analysis. Or, rather, there are no total profits in Mr. Keynes's sense in this case, and yet there occur those very effects which he regards as only conceivable as the consequences of the emergence of net total profits or losses. 
• The explanation of this is that while the definition of profits which I have quoted before serves very well when it is applied to individual profits, it becomes misleading when it is applied to entrepreneurs as a whole. The entrepreneurs making profits need not necessarily employ more original factors of production to expand their production, but may draw mainly on the existing stocks of intermediate products of the preceding stages while entrepreneurs suffering losses dismiss workmen.

  But this is not all. Not only is it possible for the changes which Mr. Keynes attributes only to changes in “total profits” to occur when “total profits” in his sense are absent: it is also possible for “total profits” to emerge for causes other than those contemplated in his analysis.

• It is by no means necessary for “total profits” to be the effect of a difference between current receipts and current expenditure. Nor need every difference between current receipts and current expenditure lead to the emergence of “total profits.” 
• For even if there is neither positive nor negative investment, yet entrepreneurs may gain or lose in the aggregate because of changes in the value of capital which existed beforeㅡchanges due to new additions to or subtractions from existing capital.[4] It is such changes in the value of existing intermediate products (or “investment,” or capital, or whatever one likes to call it) which act as a balancing factor between current receipts and current expenditure. 
• Or to put the same thing another way, profits cannot be explained as the difference between expenditure in one period and receipts in the same period or a period of equal length because the result of the expenditure in one period will very often have to be sold in a period which is either longer or shorter than the first period. It is indeed the essential characteristic of positive or negative investment that this must be the case.

[※ 뒷부분 경기순환에서 다룰 문제 중 (1)과 (2) : ]
  It is not possible at this stage to show (1) that a divergence between current expenditure and current receipts will always tend to cause changes in the value of existing capital which are by no means constituted by that difference, and (2) that[,] because of this, the effects of a difference between current receipts and current expenditure (i.e. profits in Mr. Keynes' sense)[,] may lead to a change in the value of existing capital which may more than balance the money-profits. We shall have to deal with this matter in detail when we come to Mr. Keynes's explanation of the trade cycle, but before we can do that we shall have to analyse his concept of investment very closely.

[※ 케인스의 투자 개념 : ]
It should, however, already be clear that even if his concept of investment does not refer, as has been assumed, to changes in the value of existing capital but to changes in the physical quantities of capital goodsㅡand there can be no doubt that in many parts of his book Mr. Keynes uses it in this senseㅡthis would not remedy the deficiencies of his analysis. At the same time there can be no doubt that it is the lack of a clear concept of investmentㅡand of capitalㅡwhich is the cause of this unsatisfactory account of profit.

  There are other very mischievous peculiarities of this concept of profits which may be noted at this point. The derivation of profits from the difference between receipts for the total output and the expenditure on the factors of production implies that there exists some normal rate of remuneration of invested capital which is more stable than profits. Mr. Keynes does not explicitly state this, but he includes the remuneration of invested capital in his more comprehensive concept of the “money rate of efficiency earnings of the factors of production” in general, a concept on which I shall have more to say later on. But even if it be true, as it probably is, that the rate of remuneration of the original factors of production is relatively more rigid than profits, it is certainly not true in regard to the remuneration of invested capital. Mr. Keynes obviously arrives at this view by an artificial separation of the function of the entrepreneurs as owners of capital and their function as entrepreneurs in the narrow sense. But these two functions cannot be absolutely separated even in theory, because the essential function of the entrepreneur, that of assuming risks, necessarily implies the ownership of capital. Moreover ( ... ... )

  Now this artificial separation of entrepreneurs' profits from the earnings of existing capital has very serious consequences for the further analysis of investment:

• it leads not to an explanation of the changes in the demand price offered by the entrepreneurs for new capital[기업가들의 새로 투자할 자본재를 구매하려는 가격], 
• but only to an explanation of changes in their aggregated demand for "factors of production" in general. 
• But, surely, an explanation of the causes which make investment more or less attractive should form the basis of any analysis of investment. Such an explanation can, however, only be reached by a close analysis of the factors determining the relative prices of capital goods in the different successive stages of productionㅡfor the difference between these prices is the only source of interest. But this is excluded from the outset if only total profits are made the aim of the investigation. Mr. Keynes' aggregates conceal the most fundamental mechanisms of exchange.
• ※ 결국 자본이든 노동이든 생산요소 총량으로 취급하지 많고 기업가 상호간의 자본재 구매(또한 자본재의 상대가격)를 감안해야 한다는 얘기인 듯. 이윤을 총이윤이라는 집계변수로 잡으면 이런 점들을 고려할 수 없다는 얘기.

4. Keynesian Confusion on Investment

I pass now to the central and most obscure theme of the book, the description and explanation of the processes of investment. ( ... ... )

• Not only does he (1) fail to concern himself with the conditions which must be given to secure the continuation of the existing capitalistic (i.e. roundabout) organisation of production (i.e. conditions creating an equilibrium between the depreciation and the renewal of existing capital)[,] 
• not only does he (2) take the maintenance of the existing capital stock more or less as a matter of course (which it certainly is notㅡit requires quite definite relationships between the prices of consumption goods and the prices of capital goods to make it profitable to keep capital intact): 
• he (3) does not even explain the conditions of equilibrium at any given rate of saving. (4) Only when money comes in as a disturbing factor by making the rate at which additional capital goods are produced different from the rate at which saving is taking place does he begin to be interested.

  ( ... ... ) [Keynes] makes a satisfactory analysis of the whole process of investment still more difficult for himself by another peculiarity of his analysis, namely by [:]

• (1) completely separating the process of the reproduction of the old capital from the addition of new capital, 
• and (2) treating the former simply as a part of current production of consumption goods, in defiance of the obvious fact that the production of the same goods, whether they are destined for the replacement of or as addition to the old stock of capital, must be determined by the same set of conditions. 
• (1)' New savings and new investment are treated as if they were something entirely different from the reinvestment of the quota of amortisation of old capital, and as if it were not the same market where the prices of capital goods needed for the current production of consumption good and of additional capital goods are determined. 
• Instead of a "horizontal" division between capital goods (or goods of higher stages or orders) and consumption goods  (or goods of lower stages)ㅡ( ... ... )ㅡMr. Keynes attempts a kind of vertical division, (3) counting that part of the production of capital goods which is necessary for the continuation of the current production of consumption goods as a part of the process of producing consumption goods, and (4) [counting] only that part of the production of capital goods which adds to the existing stock of capital as production of investment goods. 

But this procedure involves him, as we shall see, in serious difficulties when he as to determine what is to be considered as additional capitalㅡdifficulties which he has not clearly solved. The question is ( ... ... ).

  ( ... ... ... ... )


5. The Process of Investment

( ... ... )

  Perhaps the clearest expression of what Mr. Keynes thinks when he uses the term investment is to be found where he defines it as[:]

“the act of the entrepreneur whose function it is to make the decisions which determine the amount of the non-available output” consisting “in the positive act of starting or maintaining some process of production or of withholding liquid goods. It is measured by the net addition to wealth whether in the form of fixed capital, working capital or liquid capital” (Vol. I. p. 172: 화폐론 12장).

( ... ... ) while the expression “net addition to wealth” in the passage just quoted clearly indicates that investment means the increment of the value of existing capitalㅡsince wealth cannot be measured otherwise than as valueㅡsomewhat earlier, when the term “value of investment” occurs for the first time (Vol. I, p. 126: 화폐론 9장), it is expressly defined as [:]

“not the increment of value of the total capital, but the value of the increment of capital during any period.” 

Now, in any case, this would be difficult as, if it is not assumed that the old capital is always replaced by goods of exactly the same kind so that it can be measured as a physical magnitude, it is impossible to see how the increment of capital can be determined otherwise than as an increment of the value of the total. But, to make the confusion complete, side by side with these two definitions of investment as the increment of the value of existing capital and the value of the increment, four pages after the passage just quoted, he defines ( ... ... ... ).

  These obscurities are not a matter of minor importance. It is because he has allowed them to arise that Mr. Keynes fails to realise the necessity of dealing with the all-important problem of changes in the value of existing capital; and this failure, as we have already seen, is the main cause of his unsatisfactory treatment of profit. ( ... ... ... )


6. A Picture of the Process Itself 

( ... ... )

Diagrammatic Version of Mr. Keynes's Theory of the Circulation of Money

( notes to the diagram )

  E, which stands at the top and again at the bottom of the diagram, represents (...Book III ...) the total earnings of the factors of production.

• These[E] are to be considered as identically one and the same thing as (a) the community's money income (which includes all wages in the widest sense of the word, the normal remuneration of the entrepreneurs, interest on capital, regular monopoly gains, rents and the like) and (b) “the cost of production.” 
• Though the definition does not expressly say so, the use Mr. Keynes makes of the symbol E clearly shows that that “cost of production” refers to current output. 
• But here the first difficulty arises.[:] 

(1) Is it necessarily true that the E, which was the cost of production of current output, is the same thing as the E which is earned during the period when this current output comes on to the market and which therefore is available to buy that current output?

(2) If we take the picture as a crosscut at any moment of time, there can be no doubt that the E at the top and the E at the bottom of our diagram, i.e. income available for the purchase of output and the earnings of the factors of production, will be identical, but that does not prove that the cost of current output need necessarily also be the same.

Only if the picture were to be considered as representing the process in time as a kind of longitudinal section, and if then the two E's at the top and at the bottom (i.e. current money income and the remuneration of the factors of production which were earned from the production of current output) were still equal, would the assumption made by Mr. Keynes be actually given. But this could only be true in a stationary state: and it is exactly for the analysis of a dynamic society that Mr. Keynes constructs his formulae. And in a dynamic society that assumption does not apply.

  But what ever the relations of earnings to the cost of production of current output may be, there can be no doubt that Mr. Keynes is right when he emphasises the importance of the fact that the flow of the community's earnings of money income shows “a twofold division (1) into the parts which have been earned by the production of consumption-goods and investment-goods respectively and (2) into part which are expended on consumption goods and savings respectively” (Vol. I, p. 134) and that these divisions need not be in the same proportion, and that any divergence between them will have important consequences.

  Clearly recipients of income must make a choice: they may spend on consumption goods or they may refrain from doing so. In Mr. Keynes's terminology the latter operation constitutes saving. In so far as they do save in this sense, they have the further choice between what one would ordinarily call hoarding and investing, as Mr. Keynes ( ... ) chooses to call it, between "bank-deposits" and "securities." [7] In so far as the money saved is converted into "loan or real capital," i.e. is lent to entrepreneurs or used to buy investment goods, this means a choice what Mr. Keynes calls "securities" while when it is held as money this means a choice for "bank deposits." This choice, however, is not only open to persons saving currently, but also to persons who have saved before and are therefore owners of the whole block of old capital. There is a third and most important factor which may affect the relation between what is currently saved and what becomes currently available for the purposes of investment: the banks. If the demand of the public for bank deposits increases either because the people who save invest only part of the amounts saved, or because the owners of old capital want to convert part of their "securities" into "bank deposits," the banks may create additional deposits and use them to buy the "securities" which the public is less anxious to hold, and so make up for the difference between current saving and the buying of securities. The banking system may ( ... ... )

  On the other hand, entrepreneurs will receive money from two sources: [:]

• (a) either from the sale of the output of consumption goods, 
• or (b) from the "sale" of "securities" (which means investment in the ordinary sense), which latter operation may (b1) take the form of selling investment goods they have produced or (b2) raising a loan for the purpose of holding old [investment goods] or producing new [ones] [investment goods]. 

I understandㅡ(...)ㅡthat the total received from these two sources will be equal to the value of new investment, but in this case it would be identical with the amount of the "securities," and there would then be no reason to introduce this latter term. If, however, I should be mistaken on that point, the symbol I (which stands for the value of new investments) would not belong to the place where I have inserted it in the diagram above.

  ( ... ... ) The whole idea that it is possible to draw in the way he does a sharp line of distinction between the production of investment goods and the current production of consumption goods is misleading. [:]

• The alternative is not between producing consumption goods or producing investment goods, but between producing investment goods which will yield consumption goods at a more or less distant date in the future. 
• The process of investment does not consist in producing side by side with what is necessary to continue current production of consumption goods on the old methods, additional investment goods, but rather in producing ^other^ machinery, for the same purpose but of a greater degree of efficiency, to take the place of the inferior machinery, etc., used up in the current production of consumption goods. 

And when the entrepreneurs decide to increase their investment,[:] 

• this does not necessarily mean that at that time more original factors of production than before are employed in the production of investment goods, but only that the new processes started will have the effect that, because of their longer duration, after some time a smaller proportion of the output will be "available" and a larger "non-available."
• Nor does it mean as a matter of course that even that part of the total amount spent on the factors of production which is not new investment but only reproduction of capital used up in the current production of consumption goods, will become available after the usual time.

7. Static Model of a Dynamic Process

But, in addition to ( ... the concept of investment ... ), there is a further difficulty introduced with these formulae. In order to provide an explanation of the changes in the price-level (or rather price-levels) he needs ( ... ) symbols representing the physical quantities of the goods on which the money is spent. He therefore chooses his units of quantities of goods in such a way that "a unit of each has the same cost of production at the base date" and calls O "the total output of goods in terms of these units in a unit of time, R the volume of liquid Consumption goods and Services flowing onto the market and purchased by the consumers, and C the net increment of investment, in the sense that O＝R＋C" (Vol. I, p. 135). ( ... ... ) ※ 거의 이 물량 단위의 변량 정의를 비판하는 내용.

8. The Circulation of Money

Mr. Keynes's picture of the circulation of money shows three points where spontaneous change may be initiated:

• (1) the rate of saving may change, i.e. the division of the total money income of the community into the parts which are spent on consumption goods and saving respectively; 
• (2) the rate of investment may change, i.e. the proportion in which the factors of production are directed by entrepreneurs to the production of consumption goods and the production of additional investment goods respectively; 
• (3) banks may pass on to investors more or less money than that part of the savings which is not directly invested (and that part of the old capital which is withdrawn from investment) but converted into bank deposits so that the total of money going to entrepreneurs as investment surpasses or fall short of total savings.

  If only (1) changes, i.e. if the rate of saving changes without any corresponding changes in (2) and (3) from the position existing before the changes in (1) (which is to be taken as an equilibrium position) took place[,] the effect will be that producers of consumption goods receive so much more or less for their output than has been expended on its production as E－S exceeds or falls short of E－I'. (E－S)－(E－I') or I'－S, i.e. the difference between savings and the cost of investment, will be equal to the profits on the production of consumption goods; and as this magnitude is positive or negative  entrepreneurs will be induced to expand or curtail output. Provided that (3) remains at the equilibrium position, i.e. that banks will pass on to the entrepreneurs exactly the amount which is saved and not invested directly, the effect on the production of investment goods will be exactly the reverse of the effect on the production of consumption goods. That is to say (positive or negative) profits made on the production of consumption goods will be exactly balanced by (negative or positive) profits on the production of investment goods. A change in (1) will, therefore, never give rise to total profits, but only to partial profits balanced by equal losses, and only lead to a shift between the production of consumption goods and the production of investment goods which will go on until profits on both sides disappear.

  It is easily to be seen that the effect of changes of the type (2) will, if not accompanied by changes in either (1) or (3), be of exactly the same nature as of changes in (1). Positive profits on the one hand and negative profits on the other will soon show that deviation from the equilibrium position existing before without a corresponding change in (1) is unprofitable and will lead to a re-establishment of the former proportion between the production of consumption goods and the production of investment goods.

  Only a change in (3) will lead to total profits. (This is also shown by the formula for total profits, namely Q＝I－S.) Now the causes why I may be different from S are of a very complex nature, and are investigated by Mr. Keynes in very great detail. We shall have to discuss his analysis of this problem when we come to his theory of the bank rate. For present purposes, it will, however, be more convenient to take the possibility of such a divergence for granted, and only to mention that[:]

the fact that more (or less) money is been invested that is being saved is being saved is equivalent to so much money being added to (or withdrawn from) industrial circulation, so that the total of profits, or the difference between the expenditure and the receipts of the entrepreneurs, which is the essential element in the second term of the fundamental equations, will be equal to the net addition to (or subtraction from)the effective circulation. It is here, according to Mr. Keynes, that we find the monetary causes working for a change in the price-level; and his considers it the main advantage of his fundamental equations that they isolate his factor.

• ※ 이탤릭 부분: 케인스(1931)가 화폐론에서 펼친 이론과 거리가 먼 내용이고 자신의 주장과 다름에도 하이에크가 자신의 주장이라고 우기는 내용이며, 이 명제들을 부정하는 것이 자기 이론에 핵심적이라고 했던 부분.

9. Changes in the Price Level

The aim of the fundamental equations is to "exhibit the causal process, by which the price-level is determined, and the method of transition from one position of equilibrium to another" (Vol. I, p. 135). What they say is essentially that the purchasing power of money (or the general price-level) will deviate from its "equilibrium position," i.e. the average cost of production of the unit of output, only if I' or I (if the price-level in general and not the purchasing power of money, or the price-level of consumption goods is concerned) is different from S. ( ... ... )

  The best short explanation of the meaning of the fundamental equations I can find is the following (Vol. I, pp. 152-3):

"Thus, the long period equilibrium norm of the Purchasing Power of Money is given by the money-rate of efficiency earnings of the Factors of Production; whilst the actual Purchasing Power oscillates below or above this equilibrium level according as the cost of current investment is running ahead of, or fall behind, savings. ... A principal object of this Treatise is to show that we have here the clue to the way in which the fluctuations of the price-level actually come to pass, whether they are due to oscillations about a steady equilibrium or to a transition from one equilibrium to another. ... Accordingly, therefore, as the banking system is allowing the rate of investment to exceed or fall behind the rate of saving, the price-level (assuming that there is no spontaneous change in the rate of efficiency-earnings) will rise or fall. If, however, the prevailing type of contract between the entrepreneurs and the factors of production is in terms of effort-earnings W and not in terms of efficiency-earnings W1 (existing arrangements probably lie as a rule somewhere between the two) then it would be I/e P, which would tend to rise or fall, where, as before e is the coefficient of efficiency."

  ( ... ... ... )

* * *

PART 2 (출처: Economica, No. 35. (Feb. 1932), pp. 22-44. )

11. Keynes's Theory of the Bank Rate

Towards the end of his summary of the argument contained in those sections of the Treatise which were discussed in the first part of this article, Mr. Keynes writes:

“If the banking system controls the terms of credit in such a way that savings are equal to the value of new investment, then the average price-level of output as a whole is stable and corresponds to the average rate of remuneration of the factors of production. If the terms of credit are easier than this equilibrium level, prices will rise, profits will be made. ... And if the terms of credit are stiffer than the equilibrium level, prices will fall, losses will be made. ... Booms or slumps are simply the expression of the results of an oscillation of the terms of credit about their equilibrium position.” [2] 

This brings us to the first and, in many respects, the most important question we have to consider in this second article, viz. Mr. Keynes's theory of the Bank Rate.

  The fundamental concept, upon which his analysis of this subject is based, is Wicksell's idea of a natural, or equilibrium, rate of interest, i.e. the rate at which the amount of new investment corresponds to the amount of current savingsㅡa definition of Wicksell's concept on which, probably, all his followers would agree. Indeed, when reading Mr. Keynes's exposition, any student brought up on Wicksell's teaching will find himself on what appears to be quite familiar ground until, his suspicions having been aroused by the conclusions, he discovers that, behind the verbal identity of the definition, there lurks (because of Mr. Keynes's peculiar definition of saving and investment) a fundamental difference.

• For the meaning attached by Mr. Keynes to the terms "saving" and "investment" differs from that usually associated with them. 
• Hence the rate of interest which will equilibrate "savings" and "investment" in Mr. Keynes's sense is quite different from the rate which would keep them in equilibrium in the ordinary sense.

  The most characteristic trait of Mr. Keynes's explanation of a deviation of the actual short-term rate of interest from the "natural" or equilibrium rate is his insistence on the fact that this may happen independently of whether the effective quantity of money does, or does not, change. He emphasises this point so strongly that he could scarcely expect any reader to overlook the fact that he wishes to demonstrate it. But, at the same time, while he certainly wants to establish this proposition, I cannot find any proof of it in the Treatise. Indeed, at all the critical points, the assumption seems to creep in that this divergence is made possible by the necessary change in the supply of money.[3]

[3] I do not refer here to certain passages (e.g. on pp. 198[화폐론 13장 1절], 272[17장 3절], II, 100[27장 2절]) where this assumption is quite explicitly expressed; these are probably accounted for by the fact that Mr. Keynes actually believed something of this sort when he first began working on Book III of the Treatise (see his reply to the first part of this article, p. 389).

It is quite certain that his reason for believing that a difference between saving and investment can arise without the banks changing their circulation does not become clear in the first section of the relevant chapter. In this section he distinguishes three different strands of thought in the traditional doctrineㅡonly the first and the third of which are relevant to this point, so that the second, which is concerned with the effect of the Bank Rate on international capital movement, may be neglected here. According to Mr. Keynes, the first of these strands of thought “regards Bank Rate merely as a means of regulating the quantity of bank money” (p. 187) while the third strand "conceives of Bank Rate as influencing in some way the rate of investment and, perhaps, in the case of Wicksell and Cassel, as influencing the rate of investment relatively to that of saving" (p.190). But, as Mr. Keynes himself sees in one place (p.197), there is no necessary conflict between these two theories. 

• The obvious relation between them, which would suggest itself to any reader of Wicksellㅡa view which was certainly held by Wicksell himselfㅡis that[:] 

since, under the existing monetary system, changes in the amount of money in circulation are brought about mainly by the banks expanding or contracting their loans, and since money so borrowed at interest is used mainly for purposes of investment, any addition to the supply of money, not offset by a reverse change in the velocity of circulation, is likely to cause a corresponding excess of investment over saving; and any decrease will cause a corresponding excess of saving over investment.

• But Mr. Keynes believes that Wicksell's theory was something different from this and, in fact, rather like his own, apparently because Wicksell thought that one and the same rate of interest may serve both to make saving and investment equal and to keep the general price-level steady. 

As I have already stated, however, this is a point on which, in my view, Wicksell is wrong. But there can be no doubt that Wicksell was emphatically of the opinion that the possibility of there being a divergence between the market rate and the equilibrium rate of interest is entirely due to the "elasticity of the monetary system" (see Geldzins und Gueterpreise, p. 101, Vorlesungen, p. 221 of Vol. II) i.e. to the possibility of adding money to, or withdrawing it from, circulation. 

12. Lack of a Satisfactory Theory

※ Part 1 혹은 그의 Prices and Production에서 fixed capital과 circulating capital에 대한 논의가 얼마나 상세하게 전개되었는지 모르지만, 그 논의와 함께 견주어 읽어야만 논지를 이해할 수 있을 듯.

Mr. Keynes's own exposition of the General Theory of the Bank Rate (pp. 200~209) does not, by any means, solve the problem of how a divergence between the Bank Rate and the equilibrium rate should affect prices and production otherwise than by means of a change in the supply of money. Nowhere more than here, is one conscious of the lack of a satisfactory theory as to the effects of a change in the equilibrium rate; and of the confusion which results from the fundamentally different treatment of fixed and working capital. In most parts of his analysis, one is not clear whether he is speaking of the effects of any change in the Bank Rate, or whether what he says apples only to the effect of the Bank Rate being different from the market rate; nowhere does he make it clear that a central bank is in a position to determine the rate only because it is in a position to increase or decrease the amount of money in circulation.

  But the least satisfactory part of this section is the over-simplified account of how a change in Bank Rate affect investment or, rather, the value of fixed capitalㅡsince, for some unexplained reason, he here substitutes this latter concept for the former. This explanation consists merely in pointing out that,[:] 

since “a change in Bank Rate is not calculated to have any effect (except, perhaps, a remote effect of the second order of magnitude) on the prospective yield of fixed capital” and since the conceivable effect on the price of that yield may be neglected, the only “immediate, direct and obvious effect” of a change in the Bank Rate on the value of fixed capital will be that its given yield will be capitalised at the new rate of interest (p. 202). 

But capitalisation is not so directly an effect of the rate of interest; it would be truer to say that both are effects of one common cause, viz. the scarcity or abundance of means available for investment, relative to the demand for those means. Only by changing this relative scarcity will a change in the Bank Rate also change the demand price for the services of fixed capital. If a change in the Bank Rate corresponds to a change in the equilibrium rate it is only an expression of that relative scarcity which has come about independently of this action. But if it means a movement away from the equilibrium rate, it will become effective and influence the value of fixed capital only in so far as it brings about a change in the amount of funds available for investment.

  It is not difficult to see why Mr. Keynes came to neglect this obvious fact. For it is scarcely possible to see how a change in the rate of interest operates at all if one neglects, as Mr. Keynes neglects in this connection, the part played by the circulating capital which co-operates with the fixed capital; only in this way can one see how a change in the amount of free capital will affect the value of invested capital. To over-emphasise the distinction between fixed and circulating capital, which is, at best, merely one of degree, and not by any means of fundamental importance, is a common trait of English Economic Theory and has probably contributed more than any other cause to the unsatisfactory state of English theory of capital at the present time. In connection with the present problem it is to be noted that his neglect of working capital not only prevents him from seeing in what way a change in the rate of interest affects the value of fixed capital, but also leads him to a quite erroneous statement about the degree and uniformity of that effect. [:]

It is simply not true to state that a change in the rate of interest will have no noticeable effect on the yield of fixed capital; this would be to ignore the effect of such a change on the distribution of circulating capital. 

• (1) The return attributable to any piece of fixed capital, any plant, machinery, etc., is in the short run, essentially a residuum after operating costs are deducted from the price obtained for the output, 
• and once a given amount has been irrevocably sunk in fixed capital, even the total output obtained with the help of that fixed capital will vary considerably, according to the amount of circulating capital which it pays at the given prices, to use in co-operation with the fixed capital. 
• (2) Any change in the rate of interest will, obviously, materially alter the relative profitableness of the employment of circulating capital in the different stages of production, according as an investment for a longer or shorter period is involved; 
• (3) so that it will always cause shifts in the use of that circulating capital between the different stages of production, and bring about changes in the marginal productivity (the "real yield") of the fixed capital which cannot be so shifted. 
• (4) As the price of the complementary working capital changes, the yield and the price of fixed capital will, therefore, vary; and this variation may be different in the different stages of production. 

The change in the price of working capital, however, will be determined by the change in the total means available for investment in all kinds of capital goods (“intermediate products”), whether of durable or non-durable nature. [※고정자본이든 유동자본이든 {자본재(자본재란 “중간생산물”을 말한다)로 투자할 수단의 총량 = 자본재 총량}이 변하면 유동자본의 가격도 변한다. ]

• (1) Any increase of means available for such investment will necessarily tend to lower the marginal productivity of any further investment of capital, [※ 자본재 총량이 늘어날수록 투자의 한계생산성이 떨어진다.]
• (2) i.e. lower the margins of profit derived from the difference between the prices of the intermediate products and the final products by raising the prices of the former[intermediate products] relatively to the prices of the latter. [※ 자본재 총량의 증가→투자의 한계생산성 하락→투자하는 중간재의 한계생산성이 떨어질수록 최종재 가격 대비 중간재의 가격이 높아진다→이윤율 하락.을 뜻하는 듯. 여기서 가격이란 표현은 정확하지 않고 평균비용이 옳을 듯. 즉 산출물 단위당 총비용 대비 산출물 단위당 중간재의 투입비용이 그 한계생산생의 하락에 동반하여 상승한다는 것일 듯. ]

  It would appear that Mr. Keynes's failure to see these inter-relations is due to the fact that he does not clearly distinguish, in the passage referred to above, between the gross and the net yield of fixed capital.

• If he had concentrated on the effects of a change in the rate of interest on the net yield, as being the only relevant phenomenon, he could hardly have failed to see that the effect of such a change on fixed capital is not quite as direct and uniform as he supposes; 
• and he would certainly have remembered also that there exists a tendency for the net money yield of real capital and the rate of interest to become equal. 
• Thus, the process of capitalisation at any given rate of interest means merely that, while money is obtainable at a rate of interest lower than the rate of yield on existing capital, borrowed money will be used to purchase capital goods until their price is so enhanced that the rate of yield is lowered to equal the rate of interest; and vice versa.

13. Keynes's Peculiar Concept of Saving

Although these deficiencies account for the fact that Mr. Keynes has not seen what I think is the true effect of a divergence between Bank Rate and equilibrium rate of interest, their existence does not give an explanation of Mr. Keynes's own solution to this problem. This has to be sought elsewhere, viz. as already indicated, in Mr. Keynes's peculiar concept of saving. 

He believes that, in order to maintain equilibrium, new investment must be equal[:]

• (1) not only to that part of the money income of all individuals which exceeds what they spend on consumers' goods plus what must be re-invested in order to maintain existing capital equipment (which would constitute saving in the ordinary sense of the word); 
• (2) but also to that portion of entrepreneurs' “normal” incomes by which their actual income (and, therefore, their expenditure on consumption goods) has fallen short of that “normal” income. [※?? I＝actual income－normal income(＝windfall loss) when actual income < normal income. ] 
• (2') In other words, if entrepreneurs are experiencing losses (i.e. are earning less than the normal rate), and make up for such losses either by cutting down their own consumption pari passu, or by borrowing a corresponding amount from the savers, then, argues Mr. Keynes, (a) not only do these sums[기업가가 손실을 보전하기 위해 마련한 돈(소비축소 혹은 융자)] make replacement of the old capital possible,  but (b) there should also be a further amount of new investment corresponding to these sums.[4] 

[4] As regards the inclusion of such sums in Mr. Keynes's concept of saving, cf. Treatise, Vol. I, p. 139, and my Rejoinder, ECONOMICA No. 34, p. 400. That Mr. Keynes actually wants additional new investments to correspond to savings in this sense, has now become quite clear from his definition of net investment, to be found at the top of page 397 of the same issue of ECONOMICA.

And as Mr. Keynes obviously thinks that saving (i.e. the refraining from buying consumers' goods) may, in many cases, actually cause some entrepreneurs to suffer losses which will absorb some of the savings which would otherwise have gone to new investment, this special concept of saving probably explains why he suspects almost any increase in saving of being conductive to the creation of a dangerous excess of saving over investment.

  In order to arrive at a clear understanding of this point, let us try to see what usually happens when people begin to save.[:]

• The first effect will be that less consumers' goods are sold at existing prices. This does not mean that their prices must fall, still less that their prices must decline in proportion to the decrease in demand. 
• Actually, the first effect will probably be that the sellers of consumers' goods, being unable to retail as much as before at existing prices, will, rather than sell at a loss, decide to increase temporarily their holdings of these goods and to slow down the process of production.[5]
  
  [5] This tendency is likely to be modified only to the extent that the cost of carrying goods makes it advisable to reduce prices so as to dispose of them more quickly. But it must be remembered that these costs, also, will be reduced as a consequence of the fall of interest rates and that this will act as an inducement to merchant to carry larger stocks.

• This is not only to be expected for psychological reasons, but it is important to note here that this action[즉, 잠정적인 보유 재고의 증가와 생산의 축소] on the part of entrepreneurs is not only in their own interest, but is necessary in order to make the desire to save effective. 

[Because: ] ※ 저축이 늘기 위해선 소비재 재고가 사전에 축적되어야 한다는 얘기. <가격과 생산> 2장에 나올 것임.

• Saving must involve a reduction in consumption, in order that there may be accumulated, in finished or semi-finished form, a stock of consumers' goods, which will serve to bridge the gap between the time when the last products of the former (shorter) process of production are consumed and the time when the first products of the new, more capitalistic, process reach the market.[6] 
• And by holding their goods for some time, entrepreneurs will probably be able (if the saving has led to new investment) to dispose of them at the former price. [※ 저축 증가＝소비 감소→판매되지 않은 소비재 재고 비축(증가)→저축이 투자로 실현(?고용 증가)→비축된 소비재 재고의 (저축이 늘기 전 가격대로) 판매 ]

[6] Cf. Vol. I, p. 283[ 화폐론 18장 2절이지만 이 부분에서 관련 내용을 찾기 어려움], and my Prices and Production, p. 79.

KHNW_p112-3 {{{

If, however, we assume that, for some reason or other, producers of consumers' goods prefer to go on producing at full capacity, selling at a loss in the hope that the demand will ultimately revive and that they will suffer smaller losses than a reduction of output might have involved, then, as Mr. Keynes rightly points out[어떤 대목에서?], if production is to be maintained at the same level, they must make up for their losses in one of four possible ways: (1) they must cut down their own expenditure (or, in Mr. Keynes's terminology, they must save in order to cover their losses) ; (2) reduce their bank balances ; (3) borrow from the people who save ; or (4) sell to these people other capital, such as securities.

According to Mr. Keynes, it is in these cases that  investment will remain below saving and it is, therefore, these cases which we must consider more closely.

• ※ 저축 증가(＝소비 감소)→소비재 생산자들이 이전의 생산 규모 유지(& 손실 감수)→(1)~(4)의 방법으로 손실 보전: 이 경우가 케인스에게서 저축>투자가 일어나는 상황이다. 손실이 없었다면 투자에 들어갔을 이윤이 사라졌고, 그 손실(혹은 기존 자본 보충?)을 다른 돈(1~4)으로 충당했는데, 케인스가 손실 충당을 저축으로 보니까 저축>투자가 발생하는 논리다, 라는 것이 하이에크의 추론인가?

The task of finding out whether, in any given situation, saving will or will not exactly correspond to investment in Mr. Keynes's sense, is rendered somewhat difficult because, as I have repeatedly pointed out, he has not provided us with a clear and unequivocal definition of what he means by "investment." But, for the present purpose, we can surmount the difficulty by simply taking his account of what happens when investment falls short of saving and then investigating whether these effects manifest themselves in our particular case.[:]

• Now, the effect of an excess of saving over investment, according to Mr. Keynes, will be that total incomes will not be sufficient to purchase total output at prices which cover costs. (If I and I'=S, then the rate of efficiency earnings, W1=E/O, is constant and identical with P and Π, the price level of consumption goods and the price level of output as a whole, respectively.) 

※ 괄호 속 설명은, 케인스의 기본등식 I (P＝E/O＋(I'－S)/R)에서 I'<S이면 P<E/O(=W1)이고, 기본등식 II (Π＝E/O＋(I－S)/O)에서 I<S이면 Π<E/O이므로 각각의 가격(P와 Π)이 rate of earning에 미달함을 뜻할 것임을 나타내기 위한 것일 듯.

• [하이에크가 박반 근거를 논증하겠다는 문제(X):] The question now, is whether an excess of saving over investment in Mr. Keynes's sense, caused by a part of savings being used to cover losses in any of the above-mentioned ways, will cause total incomes to fall below total cost of production.

The answer to this question seems to me to be an emphatic negative. Two cases are conceivable according to the way in which production is financed by producers of consumption goods who do not reduce their output but suffer from losses and go on producing as much as before.[:]

• (1) When the same output of consumption goods is made possible by the decreased expenditure of the entrepreneurs, incomes derived from the production of consumption goods will not fall off by more than the initial decline in the demand for consumption goods, as the decreased consumption of the entrepreneurs will to the same extent offset the effects of the initial decrease on incomes. 

• ※ “저축 증가로 유발된 소비재 수요 감소에도 불구하고 기업가의 소비 감소(&손실 보전)를 통해 소비재 산출량이 이전대로 유지되면 소비재 매출의 감소분은 소비재 수요 감소분(initial decline in the demand)보다 크지 않다. 왜냐하면 수요 감소에 따른 소비재 매출 감소 효과(the effects of the initial decrease on incomes)는 기업가의 소비 감소로 상쇄될 것이기 때문.” 
• ※ 하이에크의 표현이 정교하지 않다. 판매가가 P1→P2로 하락했는데 판매량 Q가 그대로 유지됐다고 칠 때, 매출 감소분 (P2－P1)Q이 얼마나 되겠느냐를 따지는 추론임에도 불구하고 소비재 수요(말하자면 판매량 Q)의 감소를 변수로 잡아 설명하니 추론 과정의 자가당착 같다. 수요가 줄었음에도 Q를 유지하기 위해서 P1이 P2로 하락한 것이다.
• ※ 아마도 Q1이 Q2로 줄어들었다고 칠 때의 매출 Q2.P1과 Q1을 그대로 유지한 채 P1이 P2로 하락했을 때의 매출 Q1.P2을 비교하려는 얘기 같다. 어쨌거나 가격 하락(산출량 유지)에 따른  매출  감소분 (P2－P1)Q1이 가격 유지(산출량 감소)에 따른 매출 감소분 P1(Q2-Q1)보다 크지 않을 거란 얘기 같은데 분명해보이지 않는다.

• (2) In the other case, where producers of consumption goods do not reduce their own consumption but cover their losses by borrowing or selling capital assets, clearly the income derived from the production of consumption goods will not decline at all.[7] 
• ※ 이 (1)과 (2)의 추론이 정확하든 아니든 간에 하이에크가 말하고자 하는 중간 결론은  저축 증가(＝소비 감소)로 소비재 수요가 줄어든 상황에서 소비재 생산자가 판매량을 그대로 유지하면서 판매가 하락(과 그로 인한 손실)을 감수했을 때, 소비재 생산자의 매출이 줄어들지 않는다고 주장하려는 것: 물론 (1)에서 소비재 매출이 줄어들지만 (애매한 어떤 기준의 감소분보다) 크지 않다는 얘기. (2)는 소비재 매출이 전혀 줄지 않는다는 얘기.
• ※ 그러나 수량(Q).판매가(P)＝매출의 관계에서 Q가 불변(수요가 줄었건 안 줄었건 소비재 생산자가 이전 산출 수준 Q를 그대로 유지해 전량 판매한다고 간주한 추론 아닌가)인데 P가 하락하면 매출이 감소하는 건 왈가불가할 여지가 없는 것이다. 이렇게 보면 하이에크의 (1)과 (2)의 추론 고리 전체가 무의미한 넌센스 같다. 물론 케인스가 모호하고 모순되게 화폐론을 썼다고 불평을 하고 있지만, 그 모호함을 잡아내려는 비판의 프레임은 하이에크가 만든 것이고 하이에크의 논증이다.

[7] I neglect in this connection, as Mr. Keynes neglects, the third possible case where entrepreneurs reduce their balances in order to continue production. The effect here would, obviously, be similar to that of an increase in the quantity of money.

[(1)과 (2)에 기초한 하이에크의 중간 결론: 가, 나]

[가] In the former case[(1)], therefore, the total income-stream will remain the same as when an amount equal to the new saving is being used for new investment and, in the latter case[(2)], the same will be true provided that the excess (if any) of saving over what has been lent or paid to the losing entrepreneurs is used for new investment.

[나] Mr. Keynes, however, seems to believe[:]

• that a reduction in entrepreneurs' expenditure on consumption goods constitutes a net decrease in the demand for these goods, different from, and in addition to, that shift of incomes from producers of consumption goods to producers of capital goods, which will always be the initial effect of an increase in saving[*]; 
• and that, in order to prevent undesirable disturbances, this reduction in consumption should be offset by a corresponding amount of additional new investment, to be made possible by increased loans from the banks.

[*] <always ...initial effect..>라고 말한 저축 증가의 영향은 케인스의 논리가 아니라 순전히 하이에크의 논리다. 자신이 주장하는 이 저축 증가의 영향과는'별개이며(different from)' 그에 '추가되는 (in addition to)' 영향으로서 케인스가 ... 라고 주장하고 있다. 라고 하는 식의 비판은 공격하고자 하는 상대방의 논증 자체를 표적으로 삼아 그 논리 내부의 비판을 제기하는 온당한 비판의 틀이 아니다. 하이에크가 지적하고자 했던 부분이 옳든 그르든 케인스가 자신이 주장한 내용을 하이에크의 그것과 '별개이며(different from)' 그에 '추가되는 (in addition to)' 영향이라고 서술한 것은 아닌 게 분명하기 때문. 하이에크의 생각이 비판하려는 문제 자체를 분명하게 조명하고 있지 못하다. 

[ 가, 나에서 더 나아간 새 결론을 위한 논증: 여기서부터 논증의 내용이 갑자기 비약하는 느낌을 준다. 앞에서 반박하겠다는 문제 X를 논의하는 게 아니라 다른 목적의 논증(즉, 샛길)으로 빠져드는 듯.]

(a) Let us, for the moment, concentrate on this example in which the entrepreneur, who is making losses, cuts down his consumption, this being the only available means of maintaining his capital and of recovering it for re-investment. [※ 손실을 본 기업가가 소비를 줄였다고 치자. 그의 소비 감소가 이전의 자본 수준을 유지하며 재투자하는 유일한 길이라고 치자.]

• (1) If, in spite of the fact that he is making losses, he re-invests it in the same line of production, instead of shifting it to some more profitable employment, then his sacrifice will be in vain because, after the next turn-over of this capital, he will be face to face with a new loss equal in amount to the old. 

※ 손실을 입은 기업가(소비재 생산자)가 자신의 소비 감소를 통해 손실을 보전함으로써 똑같은 생산라인에 재투자할 경우: 채산성이 높은 생산에 재투자하는 게 아니므로 그의 희생은 헛되다. 다음번 생산에서 똑같은 손실을 볼 것이기 때문이다.
※ 그런데 하이에크가 설정한 프레임(저축 발생→소비재 생산자 손실..)의 논리 전개를 화폐론의 10장(하이에크가 지적한 139쪽 포함)과 18장(하이에크가 지적한 283쪽 포함)에서 찾을 수 없음. 즉 이 논리 전개의 요소들 자체는 케인스가 언술한 내용이 아니라 하이에크가 추출한 모종의 단서를 토대로 그 스스로 구성한 내용들이 가능성이 큼.

• What is wanted in order to make effective not only his efforts to maintain his capital, but also the initial saving, is a reduction in his output, in order to set free the factors which are needed for the new investment. 
• But, so long as he insists upon maintaining his output at the old level, his saving (in Mr. Keynes' sense) not only cannot, but certainly should not give rise to any new investment.

(b) In the other case, where the losing entrepreneur obtains from other savers the capital necessary to make up for his losses, [※ 손실을 본 기업가가 손실 보전을 위해 다른 사람의 저축에서 차입을 했다고 치자.]

• (1) it is, no doubt, true that these individual savings are wasted, i.e. make no increase of the capital equipment possible. But this is so only because it is assumed that the losing entrepreneur is consuming his capital and (since the savings of other people are required to compensate for this) is thus preventing any net saving. 

※ 다른 저축자로 부터 차입했다는 건 자본 소모본을 보충하기 위한 것(그렇게 가정된 것)이니 이 감가상각(소모분의 보충) 이상의 순저축이 실현된 건 아니다.

※ 다른 곳에서도 그렇듯이 여기서도 하이에크는 저축과 투자, 순저축과 순투자를 혼동하고 있다. 왜냐하면 소모된 자본을 보충하는 행위는 감가상각에 해당하는 투자 행위인데 <손실을 본 기업가가가 자본을 소모하고 따라서 'net saving'을 방해하고 있다고 전제한 것>이라고 말하는 데서 드러란다.

• (2) But since, on balance, there is no excess of incomes over net earnings, there is no reason why any new investment should take place; this is also shown by the fact that, because the production of consumption goods is going on at an unchanged rate, no factors of production can be set free for use in the production of new investment goods.

• (3) Any attempt to bring about an increase in investment to correspond to this "saving" which is already required to maintain the old capital, would have exactly the same effect as any other attempt to raise investment above net saving; inflation, forced saving, misdirection of production and, finally a crisis. 

• It must be remembered that, so long as entrepreneurs insist on producing consumption goods at the old rate, and selling them below normal cost, no restriction of consumption and, therefore, no real saving is effected; and no stock of consumption goods will be accumulated to bridge the time gap to which we referred above (p. 28).

}}}

At the same time, it is, of course, true that under the Mr. Keynes's assumption saving will lead to a fall in the general price level, because this assumption implies that, in spite of the decreased demand for the available part of the output, the money which is not spent on consumers' goods is injected into a higher stage of the process of production of these consumers' goods in order to maintain the output and price there. The only effect of saving, on this assumption, would, therefore, be that the money would, as it were, skip the last stage of the productive process (consumer's goods), and go directly to the higher stage to maintain the demand there; and the consequence would be that no increase in demand would occur anywhere to offset the decreased demand for consumers' goods, and there would be no rise of other prices to compensate for the effect produced on the price level by the fall in the price of consumption goods.

  All this is, however, true only because it is ^assumed^ fromt the outset that, in spite of the fact that investment in the production of consumption goods has become less profitable (or even, perhaps, a losing proposition), entrepreneurs insist on investing just as much here as before and (in so far as they do not provide the capital themselves by reducing their consumption) offer to the savers better terms than the producers of capital goods. I cannot help feeling that Mr. Keynes has been misled here by his treatment of interest as part of the "rate of efficiency earnings of the factors of production" which he considers to be fixed by existing contracts, so that capitalists will get the same return wherever they invest and only the incomes of entrepreneurs will be affected. In any case, it seems to me that a complete neglect of the part played by rate of interest is involved in the assumption that, after investment in the production of cosumption goods has become relatively less profitable, some other openings for investment which are now more profitable will not be found.

  The most curious fact is that, from the outset, all of Mr. Keynes' reasoning which aims at proving that an increase in saving will not lead to an increase in investment is based on the assumption that, in spite of the decrease in the demand for consumption goods, the available output it not reduced; this means, simply, that he assumes from the outset what he wants to prove. This could be shown by many quotations from the Treatise and it would be seen that some of his most baffling conclusions, such as the famous analogy between profits and the widows's cruise and losses and the Danaid jar, are expressly based on the assumption "merely (sic!) that entrepreneurs were continuing to produce the same output of investment goods as before" (pp. 139-40). But in his recent Rejoinder to Mr. D. H. Robertson (^Economic Journal^, December 1931, p. 412), Mr. Keynes admits that he did not, in his book, deal in detail "with the train of events which ensues when, as a consequence of making losses, entrepreneurs reduce their output." This is really a most surprising admission from an author who has set out to study the shifts between available and non-availalble output and wants to ^prove^ the saving will not lead to the necessary shifts.

  To sum up the somewhat prolonged discussion of this point; in none of the cases which we have considered will there occur those effects which should follow if saving and investment (in the ordinary sense) diverge, viz. total income exceeding or falling short of the cost of total output; and ^there is no reason why saving and new investment, in Mr. Keynes' sense, should correspond^. By arbitrary changing the meaning of familiar concepts, Mr. Keynes has succeeded in making plausible a proposition which nobody would accept were it stated in ordinary terms. In the form stated by Mr. Keynes, this proposition certainly has nothing to do with Wicksell's theory, nor can Wicksell be held responsible for Mr. Keynes's interpretation.

14. Other Causes of Divergence


15. Velocity of Circulation

16. "The Gibson Paradox"

17. Explanation of the Credit Cycle

( ... ... ) All I can do is to take up a few central points and leave unexamined not only more intricate problems which arise out of the combination of the difficulties already noted but also some further important problems connected withe the traditional English concept of capital, particularly the over-emphasised distinction between fixed and circulating capital, an adequate discussion of which would require a separate article.

  The first point which must strike any reader, conversant with the writings of Wicksell and of what Mr. Keynes calls the Neo-Wicksell school, is how little use he finally makes of the effects of a monetary dis-equilibrium on ^real^ investmentㅡwhich he has been at such pains to develop. What he is really interested in is merely the shifts in the money streams and the consequent changes in price levels. It seems never to have occurred to him that the artificial stimulus to investment, which makes it exceed current saving, may cause dis-equilibrium in the real structure of production which, sooner or later, must lead to a reaction. Like so many others who hold a purely monetary theory of the trade cycle (as, for example, Mr. R. G. Hawtrey in this country and Dr. L. A. Hahn in Germany), he seems to believe that, if the existing monetary organisation did not make it impossible, the boom could be perpetuated by indefinite inflation. Though the term "over-investment" occurs again and again, its implications are never explored beyond the first conclusion that, so long as total incomes less the amount saved exceed the cost of the available output of consumers' goods (because investment is in excess of saving), the price level will have a tendency to rise. In Mr. Keynes' explanation of the cycle, the main characteristic of the boom is taken to be, not the increase in investment, but this consequent increase in the prices of consumers' goods and the profit which is therefore obtained. Direct inflation for consumption purposes would, therefore, create a boom quite as effectively as would an excess of investment over saving. Hence, he was quite consistent when, despairing of a revival of investment brought about by cheap money, he advocated, in his well-known broadcast address,[16] the direct stimulation of the expenditure of consumers[KHNW p111-1]on the lines suggested by other purchasing-power theorists such as Messrs. Abbati, Martin, and Foster and Catchings; for, on his theory, the effects of cheap money and increased buying of consumers are equivalent.

  Since, according to this theory, it is the excess of the demand for consumers' goods over the costs of the available supply which constitutes the boom, this boom will last only so long as the demand keeps ahead of supply and will end either when the demand ceases to increase or when the supply, stimulated by the abnormal profits, catches up with demand. Then the prices of consumers' goods will fall back to costs and the boom will be at an end, though it need not, necessarily, be followed by a depression; yet, in practice, deflationary tendencies are usually set up which will reverse the process. [KHNW p111-3]

  This seems to me to be, in broad outline, Mr. Keynes explanation of the cycle. In essence it is not only relatively simple, but also much less different from the current explanations than its author seems to think [KHNW p111-3] ; though it is, of course, much more complicated in its details. To me, however, it seems to suffer from exactly the same deficiencies as all the other, less elaborate, purchasing-power theories of the cycle.

  The main objection to these theoriesㅡI cannot go into details here and must beg permission, therefore, to refer to my other attempts to do so [17]ㅡseem to me to be three in number. ^Firstly^, That the original increase in investment can be maintained only so long as it is more profitable to increase the output of capital goods than to bid up the prices of the factors of production in the effort to satisfy the increased demands for consumers' goods. ^Secondly^, that the increase in the demand for consumers' goods, if not offset by a new increase in the amount of money available for investment purposes, so far from giving a new stimulus to investment, will, on the contrary, lead to a decrease in investment because of its effect on the prices of the factors of production. ^Thirdly^, that the very fact that processes of investment have been begun but have become unprofitable as a result of the rise in the price of the factors and must, therefore, be discontinued, is, of itself, a sufficient cause to produce a decrease of general activity and employment (in short, a depression) without any new monetary cause (deflation). In so far as deflation is brought aboutㅡas it may well beㅡby this change in the prospects of investment, it is a secondary or induced phenomenon caused by the more fundamental, real, dis-equilibrium which cannot be removed by new inflation, but only be the slow and painful process of readjustment of the structure of production. While Mr. Keynes has occasional glimpses of the alternative character of an increase in the outut of consumers' goods and investment goods,[18] he does not follow up this idea; and, in my view, it is this alone which could lead him to the true explanation of the crisis. But it is not surprising that he fails to do so, for it is precisely in the elucidation of these inter-relations that the tools he has created become an altogether inadequate and unsuitable equipment. The achievement of this object is, indeed, impossible with his present concepts of capital and "investment" and without a clear notion of the change in the structure of production involved in any transition to more or less capitalistic methods. An adequate criticism of Mr. Keynes' explanation of the cycle would, therefore, require a somewhat elaborate description of that process. This I have tried to give in the places referred to. All I shall attempt here will be some further explanation of the three points already mentioned.

[17] CF. my ^Prices and Production^, London, 1931; and "The 'Paradox' of Saving,", ^Economica^, No. 32, May 1931.

18. Short- and Long-run Analysis

From Mr. Keynes' Reply to the first part of these Reflections (see Economica, November 1931, p. 395), I gather that he considers what I have called changes in the structure of production (i.e. the lengthening or shortening of the average period of production) to be a long-run phenomenon which may, therefore, be neglected in the analysis of a short-period phenomenon, such as the trade cycle.[KHNW p112-1] I am afraid that this contention merely proves that Mr. Keynes has not yet fully realised that ^any^ change in the amount of capital per head of working population is equivalent to a change in the average length of the roundabout process of production and that, therefore, all his demonstrations of the change in the amount of capital during the cycle prove my point.  [KHNW p112-1] (see Treatise, Vol. II, Chapters 27-29).


KHNW p112-2 {

  Any increase in investment means that, on the average, a longer time will elapse between the application of the factors and the completion of the process and, what is particularly important in this connection, the period is not lengthened only while ^new^ investment is going on; it will have to be permanently longer if the increased capital is to be maintained, i.e. ^total^ investment (new and renewed) will have to be constantly greater than before. But if the increase of investment is not the consequence of a voluntary decision to reduce the possible level of consumption for this purpose, there is no reason why it should be permanent and the very increase in the demand for consumers' goods which Mr. Keynes has described will put an end to it as soon as the banking system ceases to provide additional cheap means for investment.[KHNW p112-2] Here, his exclusive insistence on new investment and his neglect of the process of re-investment makes him overlook the all-important fact that an increase in the demand for consumers' goods will not only tend to stop new investment, but may make a complete reorganisation of the existing structure of production inevitableㅡwhich would involve considerable disturbances and would render it impossible, temporarily, to employ all labour.

  So long as the absolute rise in the price of consumption goods is relatively smaller than the rise in the price of investment goods due to a continued expansion of credit, it is true that the upward phase of the cycle will continue. But as soon as the rise in the former overtakes the rise in the latter, this will certainly not mean that "the upward phase of the cycle will have made its appearance" (p. 283). On the contrary it must mean a period of declining investment.[19] And, as all inductive evidence shows, it is the decline in investment (or in the production of producers' goods) and not the impossibility of selling consumers' goods at remunerative prices, which characterises the beginning of the slump. Indeed, it is the experience of all depressions and especially of the present one, that the sales of consumption goods are maintained until long after the crisis; industries making consumption goods are the only ones which are prosperous and even able to absorb, and return profits on, new capital during the depression. The decrease in consumption comes only as a result of unemployment in the heavy industries, and since it was the increased demand for the products of the industries making goods for consumption which made the production of investment goods unprofitable, by driving up the prices of the factors of production, it is only by such a decline that equilibrium can be restored.

  If the real trouble is that the proportion of the total output which, as a consequence of entrepreneurs' decisions, which has become "non-available" is too great relative to what consumers are demanding to have "available"; and if, therefore, the production of "non-available" output has to be cut down, then, certainly, the resulting unemployment is due to more deep-seated causes than mere deflation and can be cured only by such a reduction of consumption relative to saving as will correspond to the existing proportion between "available" and "non-available" output; or by adapting this latter proportion to the former, i.e. returning to less capitalistic methods of production and thus reducing total output. I do not deny that, during this process, a tendency towards deflation will regularly arise; this will particularly be the case when the crisis leads to frequent failures and so increases the risks of lending. It may become very serious if attempts artificially to "maintain purchasing power" delay the process of readjustmentㅡas has probably been the case during the present crisis. This deflation is, however, a secondary phenomenon in the sense that it is caused by the instability in the real situation; the tendency will persist so long as the real causes are not removed. Any attempt to combat the crisis by credit expansion will, therefore, not only be merely the treatment of symptoms as causes, but may also prolong the depression by delaying the inevitable real adjustments. If is not difficult to understand, in the light of these considerations, why the easy-money policy which was adopted immediately after the crash of 1929 was of no effect.[KHNW p112-2]

}

  It is, unfortunately, to these secondary complications that Mr. Keynes, in common with many other contemporary economists, directs most attention. This is not to say that he had not made valuable suggestions for treating these secondary complications. But, as I suggested at the beginning of these Reflections, his neglect of the more fundamental "real" phenomena has prevented him from reaching satisfactory explanation of the more deep-seated causes of depression.

※ The end of the article.