Between Wicksell and Hayek

A bstract Mises' Theory is grounded on the "ultra-Wicksellian" idea that the pure credit system represents the working of a modern monetary economy, and that forcing banks to raise the rate of money interest does not need to operate through some binding bank-liquidity constraint. It is the rise in the relative price of consumption goods against production goods that accounts for the end of inflation. According to Mises, it is in the power of the banks to resist this readjustment; in this event, the only end to hyperinflation comes from the breaking of the monetary system. Hayek develops the second side of Mises'argument, the capital-allocation effect, while the first side, the ultra-Wicksellian picture of the monetary economy, is either weakened or taken for granted. Wicksell's 1914 reaction to Mises'book is recalled. Some criticism of Mises'readjustment mechanism from a Keynesian-Schumpeterian point of view is offered in the concluding remarks.