Proto-Austrian and Proto-Keynesian Elements of John Mills’s Credit Cycle

Abstract

John Mills’s (1867) “On Credit Cycles and the Origin of Commercial Panics” explains business cycles with both Austrian and Keynesian elements. The present article argues that a close reading reveals more alignment with Austrian business cycle theory and that Mills’s influence on Keynes’s cycle theory via William Stanley Jevons’s “sunspot theory” is based on a misinterpretation of Mills. While Ludwig von Mises (1953) did not cite Mills in his The Theory of Money and Credit, there is a trail of citations linking Mills, Jevons, and Keynes. Keynes and Jevons latched onto the idea that changes in “commercial moods” generate and exacerbate business cycles, and Mills’s “On Credit Cycles” does indeed heavily feature commercial moods and market psychology. Yet a full and close reading of Mills reveals that he believed that changes in commercial moods are driven by expansions and contractions in artificial credit. John Mills’s “On Credit Cycles” is not well known, so I review it at length, noting points of comparison to the business cycle theories of both Keynes and the Austrian school. I argue that the proto-Austrian elements of Mills’s cycle theory were ignored or misinterpreted by Jevons. Jevons regarded Mills’s cycle theory as an accurate description of the business cycle, even though he was unsatisfied with what he considered unexplained fluctuations in commercial moods. Jevons attempted to connect the fluctuations to sunspots, while Keynes was happy to leave changes in commercial moods unexplained.