Sunday, March 11, 2012

Keynes on Mises’s Theory of Money and Credit

The Austrian critics of Keynes are quick to condemn him for alleged “dismissal” of Mises’s Theorie des Geldes und der Umlaufsmittel (Theory of Money and Credit), the original German edition of which was published in 1912.

Don Boudreaux makes the following charges:
“When Mises’s German-language book first appeared in 1912, Keynes reviewed it in the prestigious Economic Journal, dismissing it as being unoriginal. Seems pretty damning, until we learn that Keynes himself, in his 1930 book Treatise on Money, confessed that ‘in German, I can only clearly understand what I already know – so that new ideas are apt to be veiled from me by the difficulties of the language.’

Keynes’s influential dismissal of Mises’s work was based not on anything as lofty as informed disagreement; it was based instead on incomprehension.”

Don Boudreaux, “Keynes on Mises — and on Himself,” Cafe Hayek, November 7, 2009.
While it is true that Keynes included the charge of unoriginality, here is in fact what Keynes really said about Mises’s Theorie des Geldes und der Umlaufsmittel (it is in fact reasonably positive):
“DR. VON MISES’ treatise is the work of an acute and cultivated mind. But it is critical rather than constructive, dialectical and not original. The author avoids all the usual pitfalls, but he avoids them by pointing them out and turning back rather than by surmounting them. Dr. Mises strikes an outside reader as being the very highly educated pupil of a school, once of great eminence, but now losing its vitality. There is no ‘lift’ in his book; but, on the other hand, an easy or tired acquiescence in the veils which obscure the light rather than a rending away of them. One closes the book, therefore, with a feeling of disappointment that an author so intelligent, so candid, and so widely read should, after all, help one so little to a clear and constructive understanding of the fundamentals of his subject. When this much has been said, the book is not to be denied considerable merits. Its lucid common sense has the quality, to be found so much more often in Austrian than in German authors, of the best French writing. The field covered is wide. .... there is a great deal on every one of these topics very well worth reading. Perhaps the third book is, on the whole, the best. The treatment throughout is primarily theoretical, and quite without striving after actualite. The book is ‘enlightened’ in the highest degree possible.” (Keynes 1914: 417).
Keynes did not engage in some savage attack on the book, nor did he dismiss it at all: he showed a balanced appreciation of it, even saying it had “considerable merits.”

As to the charge that Keynes was not able to understand Mises’s book, here is Keynes’s actual comments on the content of the work:
“The first book deals with the meaning, place, and function of money; the second with the value of money, the problem of measuring it, and the social consequences of variations in it; and the third with the relation of bank-money, of notes, and of discount policy to the theory of money. With the exception of the section on the value of money, where Dr. von Mises is too easily satisfied with mere criticism of imperfect theories, there is a great deal on every one of these topics very well worth reading. Perhaps the third book is, on the whole, the best.” (Keynes 1914: 417).
Again, not only did Keynes not “dismiss” the work or its content, but also described the content, and even appreciated and agreed with some chapters.

There is also the question of this statement of Keynes published in 1930 in A Treatise on Money:
“I should have made more references to the work of these writers if their books, which have only come into my hands as these pages are being passed through the press, had appeared when my own thought was at an earlier stage of development, and if my knowledge of the German language was not so poor (in German I can only clearly understand what I know already!—so that new ideas are apt to be veiled from me by the difficulties of language).” (Keynes 1958 [1930]: 199, n. 2).
Yet what Keynes already knew in German was not insignificant: Keynes had two German governesses in the 1890s, who, according to Skidelsky (1983: 55), gave him a “good grounding in German,” even if he admitted later that his knowledge was hardly fluent. I suspect there is some degree of self-deprecation in the remark above too, a quite British trait.

Keynes clearly had enough German to read (or at least plan to read) an astonishing 3,000-4,000 pages of the German literature* for his work on probability theory (Moggridge 1992: 172; Skidelsky 1983: 178). Around 1907, Keynes had his father send him books in German relevant to probability, and he himself said in a candid private letter to his father that his reading speed for English, French and German bore a ratio of 1:2:3 (letter of Keynes to John Neville Keynes, 22 March 1907; cited in Moggridge 1992: 172; Skidelsky 1983: 178). In August 1911, Keynes told Lytton Strachey that he was “reading endless and appalling books in German” (letter cited in Skidelsky 1983: 259) – undoubtedly German books on probability, logic or induction.

Keynes was, then, far from fluent in German. But a man who may have read something like 3,000 pages of German was hardly incompetent in German either. Even a cursory look at Keynes’s bibliography and notes of A Treatise on Probability (1st edn.; London, 1921) shows a vast range of German works cited.

There is no evidence that Keynes was so incompetent in German that he could not tackle Mises’s Theorie des Geldes und der Umlaufsmittel, nor that he could not understand that work reasonably well.

* The original German edition of Mises’s Theorie des Geldes und der Umlaufsmittel (1912) had 476 pages of text. That should not have been so difficult for a man who had poured through 3,000-4,000 pages of German writings on mathematics and probability.


Keynes, J. M. 1914. “Theorie des Geldes und der Umlaufsmittel. by Ludwig von Mises; Geld und Kapital. by Friedrich Bendixen” (review), Economic Journal 24.95 (Sep.): 417–419.

Keynes, J. M. 1921. A Treatise on Probability (1st edn.), Macmillan, London.

Keynes, J. M. 1958 [1930]. A Treatise on Money (vol. 1), Macmillan, London.

Mises, L. von. 1912. Theorie des Geldes und der Umlaufsmittel, Duncker & Humblot, Munich and Leipzig.

Moggridge, D. E. 1992. Maynard Keynes: An Economist’s Biography, Routledge, London.

Skidelsky, R. J. A. 1983. John Maynard Keynes: Hopes Betrayed 1883–1920 (vol. 1), Macmillan, London.


  1. Just for the record, Keynes's contribution to probability theory is not based upon the works of German logicians. It is based upon the work of the mathematician George Boole, who wrote An Investigation of the Laws of Thought. See Dr. Michael Emmett Brady for reference...

  2. I am always impressed by the scholarly credentials of the English and Scottish upper class of the 19th century and early 20th century.

    Not only Keynes but also other members of the Liberal Party could speak several languages fluently and read foreign works in the original form. One British Liberal Prime Minister spoke everything from Italian to Spanish to French to Greek, if I recall correctly. In Canada of the time, one governor spoke to another in Latin and received a response in Greek.

    All in all, the British upper class of the time were the most erudite upper class of any upper class seen in any other time. The political elites of today's Commonwealth countries simply don't compare in erudition.

  3. Where exactly is the discussion of Mises's ideas? Here, Keynes has simply listed the section titles. Where is the analysis of "here is what Mises thinks about X... here is where X is useful, here is where it is bad" ?

    From Keynes's review, you'd think that Mises was merely unsatisfied with prevailing theories of the value of money. Where is the mention of *Mises's* theory presented in the book: the regression theorem?

    Doesn't Mises cover a credit theory of the business cycle near the end? Where is the analysis of that?

    Finally, Keynes does not seem to be admitting to *not knowing* German... just being unable to grasp new concepts which were first presented in German. It may well have been the case that an English ToMC would be easier for him to understand.

  4. marris@Mar 12, 2012 12:19 PM

    This was meant to be a short review by Keynes. Why would he go into such detail in a short review? Just as he just sketched the content of Geld und Kapital (Money and Capital) by Friedrich Bendixen.

    Also, I am not sure whether the original edition had a business cycle theory in it.

  5. Prateek@Mar 12, 2012 10:59 AM

    Yes, the public school and university education of the British upper classes and middle classes (at places like Eton) in these years included French, Greek and Latin. Even things like Latin verse composition. Mathematics was also a major part.