The Fashionable Keynesian Doctrine, the “Acceleration Doctrine” Turns Entrepreneurs into Pavlovian Dogs

The acceleration doctrine holds that a temporary increase in consumer demand sets in motion an accelerated “derived demand” for capital goods. This action, according to adherents of the doctrine, explains at least part of the causation of the business cycle. As evidence supporting this theory, accelerationists point to boom-and-bust, feast-and-famine conditions prevalent in capital goods industries. . . .

Accelerationists share the danger common to all holistic and macro approaches to economic problems — namely, the submergence of individual and entrepreneurial decision (human action) to a constant factor within a pat formula. Such treatment implies on the part of entrepreneurs irrationality or sheer impulsiveness. Boulding described this situation thusly:

The picture of the firm on which much of our analysis is built is crude in the extreme, and in spite of recent refinements there remains a vast gap between the elegant curves of the economist and the daily problems of a flesh-and-blood executive. 

Accelerationists argue that a temporary rise in consumer demand automatically calls into being additional capital goods. If this were true, it follows that entrepreneurs in capital goods industries witlessly expand their capacity and thereby commit themselves to greater overhead without regard to future capital goods demand.

True, entrepreneurs can and do err in gauging future demand. But the concept of automatic response to any rise in demand, on the order of the conditioned reflex salivation of Pavlov’s dogs, is not warranted. Increased capacity is less of a calculated risk in response to increased current demand than it is to anticipated future demand. This anticipation, in turn, is likely to be based upon market research, price comparison, population studies, cost analysis, political stability, etc., rather than upon impulse.

—William H. Peterson, “The Accelerator and Say's Law,” in On Freedom and Free Enterprise: Essays in Honor Ludwig von Mises, ed. Mary Sennholz (Auburn, AL: Ludwig von Mises Institute, 2008), 217, 219.