The Stock Market, Credit and Capital Formation

PREFACE

THE German edition of this book was written in 1929 and 1930, and published early in 1931 under the title Börsenkredit, Industriekredit und Kapitalbildung. The book was No. 2 in the series Beiträge zur Konjunkturforschung of the Austrian Institute for Trade Cycle Research.

The English translation was done from the German edition after I had made considerable revisions of, and additions to, the original text. The eight years that have passed since the first edition have seen a rapid development of economic thought. Naturally, my own ideas have not stood still. There are a few things of which I have become more certain than I was eight years ago; but there are many things of which I was cocksure then—and am very uncertain now. My views have changed not only concerning the truth-value or probability-value, but also concerning the practical significance of many a statement.

Under these circumstances the decision as to how to adapt the present English edition of my book was not easy. Three ways were open to me: (1) to leave the original text unchanged; (2) to revise the text and add whatever seemed necessary; or (3) to rewrite the whole book.

The first of these possibilities is, I feel, appropriate only for a book which in the form in which it was first published has given rise to so much discussion in print that a revised edition would render unintelligible what the critics and commentators have had to remark. This is true for all “classics,” and also for some recent books, such as D. H. Robertson’s Banking Policy and the Price Level, J. M. Keynes’ Treatise on Money and General Theory, F. A. Hayek’s Prices and Production. These books should not be permitted to be substantially revised in new editions, because the discussion of their theses and elaborations of them in books and articles by their critics is sometimes of no smaller importance than the original works. A relationship of complementarity has developed between the original statements and the critical comments.

Such considerations were not pertinent to my first edition. My choice, then, was only between a completely rewritten and a largely revised edition. Revision was more troublesome. Yet, in consideration of whatever discussion my first edition has brought forth, I decided in favour of a revised edition which would still contain all those propositions which have found the friendly or unfriendly attention of my critics. To give an example: I should have been inclined to omit most of my remarks on “transfer payments” (Zessionszahlungen), had it not been for the interesting comments which Mr. Koopmans devoted to them.1 Thus, I felt obliged to elaborate and qualify statements, the simple omission of which would have saved me much time. I felt obliged, moreover, to adhere by and large to the original organization of the book, although certain rearrangements would have commended themselves. I left the original structure as it was, except for the splitting up of one chapter into three, and the insertion of three new chapters (VII, VIII, and IX). This accounts for the 17 chapters of the present book as compared with the 12 of the first edition. In order to facilitate a comparison, a table is given below indicating the major changes of, and additions to, the text of the first edition.

A word of apology may be needed in order to appease terminological fanatics who refuse to understand terms in any meaning other than that which they have been assigned in the newest Keynesian language. The present book adheres to pre-Keynesian language, employing terms such as Saving and Hoarding in the traditional sense (corresponding most nearly to D. H. Robertson’s definitions). In order to avoid misunderstandings I inserted in some places the adjective “intended” or “voluntary” before the word Saving. It is to be hoped that the terminological prejudices which have developed in recent years will soon give way to the desire to understand what the others say no matter in what language they say it.

Some explanation of the relatively high degree of abstraction in several chapters of this book may be in order. Studies of the stock market are usually of the nature of more factual descriptions, and refrain from theoretical speculation about underlying relationships between stock-exchange speculation and the capital structure (production structure) of the economy. It is, however, my firm belief that little can be said about the economics of the stock exchange without going below the surface and searching into the invisible connexions between visible phenomena. I am fully aware of the suspicions which the practical man often entertains regarding abstract arguments. I can only warn the practical stock-market expert who plans to read this volume of the fact that on many points he will have to follow me through intensive speculation. He may perhaps confine his reading to Chapters III-IX and XVI-XVII, thus omitting the chapters where the discussion seems to be far off his special field of interest.

Following the tradition of preface-writing, I wish to take the opportunity to acknowledge my indebtedness to all those who have aided me in shaping my ideas on the problems discussed in this book. My greatest debt is due to a group of loyal friends and distinguished economists who became known to the world outside of Vienna as the Neo-Austrians, but who considered themselves during the years of their close collaboration as members of the “Mises-Kreis.” I mention particularly Professor Ludwig von Mises, now at the Institut Universitaire des Hautes Etudes Internationales in Geneva; Professor Friedrich A. von Hayek, now at the University of London, and Professor Gottfried von Haberler, now at Harvard University.

More acknowledgments are due for the form and content of the present English edition. First of all I wish to thank Dr. Vera Smith for the stylistic skill which she has lent to the translation. Furthermore, I have to thank several of my colleagues of the University of Buffalo, who advised me in matters of presentation and exposition; Professor Albert L. Meyers, at present of the Agricultural Adjustment Administration in Washington, who has read the whole manuscript; Mr. Bradford B. Smith, Economist of the New York Stock Exchange; Professor Wilford Eiteman, Duke University, who furnished valuable information; and Mr. Joseph G. Crost, who compiled the statistical tables for Appendix C.

FRITZ MACHLUP.

P.S.—A delay in the publication of the book enabled me to bring most of the statistical series in the tables to Appendices C and D up to the middle of 1939. F. M.

BUFFALO, N.Y., December, 1939.

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