2013년 6월 10일 월요일

[발췌: Keynes's] The Pure Theory of Money: A Reply to Dr. Hayek (1931)

출처: J. M. Keynes, "The Pure Theory of Money. A Reply to Dr. Hayek," Economica, No. 34 (Nov. 1931) pp. 387-391.
자료: 구글도서 (p. 147~) ; Jstor ;

※ By reading Keynes's article above, with which I acquainted myself only through some quotations by an author, I am coming to know the fact that Keynes did begin from the outset of his reply to Hayek, not with such remarks as that "Hayek has not read my book with that measure of 'good will' which an author is entitled to expect of a reader" or that "Until he can do so, he will not see what I mean or know whether I am right. He evidently has a passion which leads him to pick on me, but I am left wondering what this passion is." ...
※ This is Keynes's reply to the part 1 of the previous review of Treatise by Hayek.

※ 발췌 / Excerpts:

* * *


In an article published in ECONOMICA (August, 1931) Dr. Hayek has invited me to clear up some ambiguities of terminology which he finds in my Treatise on Money, and also other matters. As he frankly says, he has found his difference with me difficult to explain. He is sure that my conclusions are wrong (though he does not clearly state which conclusions), but he finds it "extremely difficult to demonstrate the exact point of disagreement and to state his objections." He feels that my analysis leaves out essential things, but he declares that "it is not at all easy to detect the flaw in the argument." What he has done, therefore, is to pick over the precise words I have used with a view to discovering some verbal contradiction or insidious ambiguity. I think I can show that most of my alleged terminological inconsistencies are either non-existent or irrelevant to my central theme. But when I have done this (which I will attempt in some short notes at the end of this article), I feel sure that I shall have made little or no progress towards convincing Dr. Hayek. For it is not really my use of language or the fact that my treatment falls far short of a complete analysis (as it certainly does) which is troubling him. It is something much more fundamental. And after reading his article carefully, I have no doubt at all what it is.


KHNW p099-1 {{
Dr. Hayek has seriously misapprehended the character of my conclusions. He thinks that my central contention is something different from what it really is. I deduce this from two passages in his article.[:]

[1] The first (page 290, the italics are mine) is as follows: [:]
“The fact that more (or less) money is being invested than 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 he considers it the main advantage of his fundamental equations that they isolate this factor.” 
[2] The second passage is on page 292: [:]
“The difference (between us) seems to lie in the fact that Mr. Keynes believes that it is possible to adapt[?] the amount of money in circulation to what is necessary for the maintenance of existing contracts without upsetting the equilibrium between saving and investing. But under the existing monetary organisation, where all changes in the quantity of money in circulation are brought about by more or less money being lent to entrepreneurs than is being saved,[2: Keynes's italics] any change in the circulation must be accompanied by a difference between saving and investing.”
  These quotations may be supplemented by [3] a passage from Dr. Hayek's Prices and Production (page 23) where he succinctly states his own theory: [:]
“It is perfectly clear that, in order that the supply and demand for real capital should be equalised, the banks must not lend more or less than has been deposited with them as savings. And this means naturally that they must never change the amount of their circulation. [3: Keynes's italics] At the same time, it is no less clear that, in order that the price level may remain unchanged, the amount of money in circulation must change as the volume of production increases or decreases. The banks could either keep the demand for real capital within the limits set by the supply of savings, or keep the price level steady; but they cannot perform both functions at once.”
이 하이에크 인용문에 대해선 Lawlor and Horn(1992) 중 II Setting the Stage 첫 부분을 참조.
  Now the passages which I have italicised in the first of these quotations are far removed from the theory of my Treatise on Money. [:]
  • It is essential to that theory to deny these propositionsㅡwhich Dr. Hayk puts in my mouth and, to judge from the second and third quotations, believes himself
  • No wonder that he finds many of my conclusions inconsistent with them[=these(Hayek's) propositions]
  • So long as a problem of this major magnitude is not cleared up between us, what is the use of discussing “irritating” terminology, which might not bother Dr. Hayek at all if he were not, for these excellent other reasons, looking for trouble? 
  • Dr. Hayek has missed, or at least does not discuss, the critical point at which our arguments part company. Having passed this by, but finding himself being led down strange and distasteful paths, he tries to prevent himself from being dragged along any further by representing the molehills in the pathway as mountains.
  Dr. Hayek holds himself, and implies that I also hold, that an act of monetary expansionㅡmeaning by this a transference from the inactive deposits to the active deposits the total quantity of money being unchanged, or an increase in the total quantity of money the quantity of the inactive deposits being unchanged.[4]ㅡis not merely a possible cause of investment exceeding saving, but (1) that it is a necessary cause of this and (2) that the amount of the monetary expansion exactly measures the excess of investment over saving and hence is exactly equal to the amount of profits (in my terminology). Will Dr. Hayek reconsider two matters?ㅡ(ⅰ) what passage can he quote from my Treatise which justifies him in attributing the above theory to me? (ⅱ) what proof can he offer which justifies him in holding it himself? 

  In my Rejoinder to Mr. D. H. Robertson, published in the Economic Journal for September 1931, I have endeavoured to re-state in a clearer way what my own theory actually is. If the total quantity of money be supposed constant, Dr. Hayek's theory comes to the same thing as the theory that the excess of saving over investment is measured by the increase of the inactive deposits, which, in the above article, I have attributed to "some readers" though I did not know that Dr. Hayek was among them.

  Since Dr. Hayek has not been alone amongst competent critics of my Treatise in falling into this misapprehension (or into some more subtle variation of it), it must be my own fault, at least in part. I suspect that it may be partly due to the fact that when I first began to work on Book III of my Treatise I believed something resembling this myself. My ceasing to believe it was the critical point in my own development and was the germ from which much of my eventual theory was worked out. It is extraordinary that I should not have made this clear, because I was acutely conscious of the difference of general outlook which the change of view involved; and after I had adopted this new view, I was at great pains to bring the rest of my work into line with it. But traces of old trains of thought are not easily obliterated, and certain passages which I wrote some time ago, may have been unconsciously cast into a mould less obviously inconsistent with my own former views than they would be if I were writing now. 

  Yet I doubt if it is all my fault. For anyone brought up in the old Quantity-of-Money, Velocity-of-Circulation schools of thought, whether it be Cambridge Quantity Equations or Fisher Quantity Equations, this seems to be, for some obscure reason, a difficult transition to make. Indeed I found it so myself. If the true theory were what Dr. Hayek believes it to be, the transition would be easy. If, on the other hand, my theory is right, not only is the angle of approach different, but it is difficult to see just what the relationship is between the new view and the old. Thus those who are sufficiently steeped in the old point of view simply cannot bring themselves to believe that I am asking  them to step into a new pair of trousers, and will insist on regarding it as nothing but an embroidered version of the old pair which they have been wearing for years. Even so, I could never have expected, if it had not been for more than one experience to the contrary, that a competent economist could read my Treatise carefully and leave it with the idea that it was my view that the difference between saving and investment could be exactly measured by changes in the quantity of money, whether it be in the inactive circulation or the active circulation or the total circulation, corrected or uncorrected for changes in the velocity of circulation or the volume of output or the number of times intermediate products change hands.

  At any rate thisㅡand not whether I may have used the word "investment" in a different sense in one chapter from what I have in anotherㅡis the issue which Dr. Hayek and I ought to debate. He has taken as the self-evident basis of his theory ("it is perfectly clear that" is his own phrase) a proposition which I deny. But we have not hitherto got to grips, because any denial of his own doctrine has seemed to him so unthinkable, that even thousands of words of mine directed to its refutation have been water off a duck's back, and whilst he notices that I hold conclusions inconsistent with it, he seems still unaware that I have disputed it from the outset.

  The point, put very briefly, is, [:]
  • firstly, that money may be advanced to entrepreneurs (directly by the banks, or through the new issue market or by the sale by them of their existing assets) either to meet losses or to provide for new investment, and that statistics of the quantity of money do not enable us to distinguish between the two cases ; 
  • and, secondly (to indicate a general principle by means of an illustration), that, if, desiring to be more liquid I sell Consols to my bank in exchange for a bank deposit and my bank does not choose to offset this transaction but allows its deposits to be correspondingly increased, the quantity of money is changed without anything having happened either to saving or to investment.


It will be worthwhile to pursue the matter a little further. For reading Dr. Hayek's ECONOMICA article in the light of his book Prices and Production, and re-reading Mr. Robertson's Economic Journal article in the light of Dr. Hayek's two contributions, I fancy that I see at last where the stumbling-block really is. Let me try, therefore, to bring matters to an issue by stating what I believe to be Dr. Hayek's fundamental theory and by explaining how, if I am right that this is what he holds, it differs from my theory. I would add that Mr. Robertson's original theory was, I think, substantially the same as that which I am imputing to Dr. Hayek; though Mr. Robertson may have now moved somewhat away from it.

KHNW p100-2 {{ (1)

[A. Keynes's interpretation of Hayek's fundamental theory:]
  • (a) “Voluntary” saving, according to Dr. Hayek, always finds its way into investment. This is so because (in his view [5]) an increase of saving means (cet. par.) a net increase of purchasing power directed to the buying of what I call "investment goods" but which Dr. Hayek calls "intermediate products" and Mr. Robertson calls "machines." [6] 
  • (b) It does not, however, follow from this (Dr. Hayek continues) that voluntary saving and investment are always equal. For if the banking system increases the supply of money, additional funds will be available for investment in excess of the amount provided by voluntary saving, with the result that investment will exceed saving and contrariwise if the banking system decreases the supply of money.
[5] This is clearly assumed in pp. 45, 46, of his Prices and Production. Dr. Hayek must have overlooked the fact that it is fundamental to my position to deny this, because, if he had noticed something so much opposed to his own theory, he must surely have criticized it. I need not pursue my reasons here, as it is precisely the same point which has been the subject of discussion between Mr. Robertson and myself in the September Economic Journal.
[6] Dr. Hayek not only implies that an increase of purchasing power directed as the result of an increase of saving to the buying of intermediate products must be spent on newly produced intermediate products, but also on newly produced intermediate products which would not have been produced otherwise. At least I cannot make sense of Chapter II of his Prices and Production except on this assumption.
  • (c) Thus, in his view, a disequilibrium between saving and investment is necessarily the result of action on the part of the banking system,[7] and, if we start from a position of equilibrium, cannot possibly arise otherwise. 
[7] It should be explained to those who have not read Dr. Hayek's book that he does not regard as "action" on the part of the banking system, i.e. as a departure by them from neutrality, changes in the quantity of money required to offset changes in the velocity of circulation or in the number of times that intermediate products change hands before reaching the consumer.
  • (d) Sometimes he assumes that the excess (or deficiency) of investment is exactly equal to the change in the quantity of moneyㅡthough there are passages in his Prices and Production which seem to me to be inconsistent with thisㅡin which case investment is equal to voluntary saving plus (or minus) the change in the quantity of money. Investment due to an increase in the quantity of money involves the public in a corresponding amount of what may be called “forced” saving. 
  • (e) Thus (to quote from Dr. Hayek's Prices and Production, page 45) [:]
“a transition to more or less capitalistic methods of production ... may come about in one of two ways: either as a result of change in the volume of voluntary saving (or its opposite), or as a result of a change in the quantity of money which alters the funds at the disposal of entrepreneurs for the purchase of producers' goods.” 
  • (f) Thus it is only a departure on the part of the banking system from what Dr. Hayek calls neutrality, which is capable of upsetting the equilibrium between saving and investment, and holding this view Dr. Hayek naturally asks me (ECONOMICA, page 293): “How can the (new) money get into circulation without creating a discrepancy between saving and investment?”
  Thus Dr. Hayek conceives of the flow of purchasing power as being made up of the incomes (how defined I do not know i.e. whether equal to my E or my E+Q or to neither) of the factors of production plus the new money [8] (if any) created by the banking system. This double stream is then divided between consumers' goods and producers' goods. If saving is increased, [,]
  • less purchasing power is directed towards consumers' goods with the result that their price falls. 
  • At the same time more purchasing power must be directed pari passu towards producers' goods with the result thatㅡI am not sure at this point whether Dr. Hayek holds that their price rises or that the quantity produced is increased or that a different kind of producers' goods is produced, but the argument of Prices and Production, Chapter II, seems to require that there will be an output of a different kind of producers' goods. [9]
[8] Beyond what is required to offset changes in the velocity of circulation and in the number of times that intermediate products change hands.
[9] Vide page 45: “A transition to more capitalistic methods of production will take place if the total demand for producers' goods (expressed in money) increases relatively to the demand for consumers' goods.”
  Dr. Hayek concludesㅡand indeed it follows if one allows him his initial assumptionsㅡthat the necessary condition of avoiding Credit Cycle is for the banking system to maintain the effective quantity of money (interpreting this in Dr. Hayek's quite intelligible sense) absolutely and for ever unaltered.

[B. Keynes's explanation of his difference from Hayek:]

  My analysis is quite different from this; as it necessarily must be, since, in my view, saving and investment (as I define them) can get out of gear without any change on the part of the banking system from “neutrality” as defined by Dr. Hayek, merely as a result of the public changing their rate of saving or the entrepreneurs changing their rate of investment, there being no automatic mechanism in the economic system (as Dr. Hayek's view would imply there must be) to keep the two rates equal, provided that the effective quantity of money is unchanged.


  As I conceive it,[,]
  • a changing price-levelㅡdue to a change in the relation between saving and investment, costs of production being unchangedㅡmerely redistributes purchasing power between those who are buying at the changed price-level and those who are selling at it, as compared with what would have happened if there had not been a change in the relation between saving and investment. 
  • I am not sure that Dr. Hayek sees clearly the two sides of account. Has he, moreover, apprehended the significance of my equation S+Q=I, namely that saving ^plus^ profits are always exactly equal to the value of new investment? It follows from this that, if we define ^Income^ to include Profits, and Savings as being the excess of Income thus defined over expenditure on consumption, then Savings and the Value of Investment are identically the same thing. 
  • He appears to conceive of Saving and Investment as not being identical and yet shrinks from defining them accordingly.
  Dr. Hayek and Mr. Robertson both make use of the term "saving" or "voluntary saving." But though they criticise my definition of "saving," I am not aware that they have precisely defined it themselves. I think that it might help the debate to get on if Dr. Hayek would consider exactly what he means by "voluntary saving" on page 45 of his Prices and Production. It is argued that it is paradoxical on my part to exclude windfall profits and losses from my definition of income. But I suggest that it is still more paradoxical to include them in income; for in this case, given the value of the current output of investment goods, the amount of the community's income depends on how much it is saving, since any increase (or decrease) in "voluntary" saving will have the effect of decreasing (or increasing) the community's income by an equal amount.


The reader will perceive that I have been drifting into a review of Dr. Hayek's Prices and Production. And this being so, I should like, if the Editor will allow me, to consider this book a little further. The book, as it stands, seems to me to be one of the most frightful muddles I have ever read, with scarcely a sound proposition in it beginning with page 45, and yet it remains a book of some interest, which is likely to leave its mark on the mind of the reader. It is an extraordinary example of how, starting with a mistake, a remorseless logician can end up in Bedlam. Yet Dr. Hayek has seen a vision, and though when he woke up he had made nonsense of his story by giving the wrong names to the objects which occur in it, his Khubla Khan is not without inspiration and must set the reader thinking with the germs of an idea in his head.

  My notion of the real nature of the contribution to economic theory which Dr. Hayek is making brings me back, however, to what seems to me to be the underlying cause of the second vein of discontent with myself running through Dr. Hayek's ECONOMICA article. Dr. Hayek complains that I do not myself propound any satisfactory theory of capital and interest and that I do not build on any existing theory. He means by this, I take it, the theory of capital accumulation relatively to the rate of consumption and the factors which determine the natural rate of interest. This is quite true; and I agree with Dr. Hayek that a development of this theory would be highly relevant to my treatment of monetary matters and likely to throw light into dark corners. It is very possible that, looking back after a satisfactory theory has been completed, we shall see that the ideas which Boehm-Bawerk was driving at, lie at the heart of the problem and that the neglect of him by English pre-war economists was as mistaken as their neglect of Wicksell. But there is no such theory at present, and, as Dr. Hayek would agree, a thorough treatment of it might lead one rather a long way from monetary theory. Nevertheless, substantially I concede Dr. Hayek's point. I agree with him that a clear account of the factors determining the natural rate of interest ought to have a place in a completed Treatise on Money, and that it is lacking in mine: and I can only plead that I had much to say for which such a theory is not required and that my own ideas about it were still too much in embryo to deserve publication. Later on, I will endeavour to make good this deficiency.

KHNW p100-2 {{ (2)

  Now it is precisely to this theory[케인스가 다루지 않았다고 하이에크가 비판한 자본/이자의 이론] that Dr. Hayek seems to me to be attempting to contribute in Lecture II of his Prices and Production. In this lecture[,]
  • he has been proceeding, so far as I can make out, on some such tacit assumption as that at every moment of time the market rate of interest is equal to what the natural rate of interest would be (1) if the prevailing relationship of capital to consumption were to be permanent, and (2) if entrepreneurs were acting on this latter assumption, without other errors of forecasting; 
  • and he then considers what would happen in an economic organisation satisfying the above assumption when the rate of new investment in fact fluctuates.
  At least, I have found no other interpretation which makes sense of the argument, or leaves it anything but a series of baffling non-sequiturs.[:]
  • If I am wrong, I hope that some authority, such as Professor Robbins, who is confident that he understands what Dr. Hayek means in pages 45-64 of his book, will act as an interpreter. 
  • If I am right, it would follow (1) that Dr. Hayek is not here dealing with the case, with which I was mainly pre-occupied, of what happens when the market rate of interest departs from the natural rate, and (2) that our theories occupyㅡas I believe they doㅡdifferent terrains

A little consideration of his problem, however, brings out the point that the term “natural rate of interest” is not altogether free from ambiguity.
  • I have defined it by reference to the rate which would at any moment equalise saving and investment, after taking into account of the existing psychology of the market, including errors of forecasting, and irrespective of whether or not the then prevailing rate of investment is expected to be permanent. We might call this the "short-period" natural rate. 
  • But clearly there is also the other type, namely envisaged by Dr. Hayek, which we might call the "long-period" natural rate. It seems to me that Dr. Hayek's methods may be suitable for analysing some of the conditions which determines this "long-period" natural rate of interest.
  I am in full agreement, also with Dr. Hayek's rebuttal of John Stuart Mill's well-known dictum that " there cannot, in short, be intrinsically a more insignificant thing, in the economy, of society, than money," which he expresses admirably in the following passage from his last lecture (p. 110): "it means also that the task of monetary theory is a much wider one than is commonly assumed; that its task is nothing less than to cover a second time the whole field which is treated by pure theory under the assumption of barter, and to investigate what changes in the conclusions of pure theory are made necessary by the introduction of indirect exchange. The first step toward a solution of this problem is to release monetary theory from the bonds which a too narrow conception of its task has created."


There remains Dr. Hayek's criticisms of my use of terms, on which I offer the following notes:

(1) It is not the case, as Dr. Hayek alleges on the top of page 274, that I contrast with the prices paid for the factors of production only the prices of finished consumption goods. Dr. Hayek forgets that "new investment goods" include, on my definition, unfinished consumption goods. Nevertheless, Mr. Hawtrey has pointed out to me that changes in the values of unfinished goods largely cancel out in my price-level of output. "It is only," he points out, "in the case where the increment of investment includes some net addition to the stock of unfinished products that the price-level in Mr. Keynes' fundamental equations reflects the prices of unfinished products at all, and in the case where there is a net reduction in the stock of unfinished products the price-level is influenced in the ^contrary^ direction to the prices of intermediate products. Practically we can treat Mr. Keynes's price-level as the price-level of finished good, subject only to a slight correction for unfinished products in certain cases." Thus this point deserved more explanation than I gave it in my book.

(2) Is Dr. Hayek's point at the bottom of page 275 and the top of page 276 that I ought to include in my Q2 profits arising from the ownership of old capital goods which have risen in value as well as those arising from currently produced capital goods? For certain purposes I should see no objection to amalgamating the two types of profit; but for other purposes, in particular where we are dealing with the price-level of output (which by its very nature distinguishes new capital from old capital) it is obviously necessarily to distinguish them
p. 397

(3) It is not the case that I separate the process of the reproduction of the old capital from the addition of new capital (p. 278). I reckon the wearing out of old capital as "disinvestment" and its replacement as "investment," and allow for this in reaching my totals of net output and of net investment.

  • ... 자본 소모는 투자 감소(disinvestment)로 취급하고, 자본 소모분의 보충은 투자로 취급한다. 이 자본 소모분의 보충을 공제한 개념으로서 순산출과 순투자를 잡는다.

(4) In the first paragraph of page 279 Dr. Hayek perhaps overlooks my distinction between the cost of investment an the value of investment. But both here and elsewhere (p.. 281) Dr. Hayek also criticises the conception of "quantity of capital" as being invalid on the ground that the different types of specific goods constituting capital are not always identical, and when non-identical are non-commensurable. But this is simply the same problem as that of the conception of "price-level" and the associated conception of real-wages when the complex of goods refers to changes in its make-up. This I have discussed at great length in Book II of my Treatise, and it arises of course in all types of monetary theory alike.

(5) An examination of the context to which Dr. Hayek refers in the first half of page 281 shows that the one refers to the value of current investment, and the other to the value of total investment.

(6) ( ...

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