Mises and Keynes Adopted Different Approaches to Economic Calculation: Mises Used NPV and Keynes Used MEC

The purpose of this paper is to show how Keynesian economics represents a justification for fractional reserve banking and why this justification is fundamentally flawed. In contrast to other examinations of Keynes’s theory, this paper will highlight the marginal efficiency of capital. Like Ludwig von Mises, Keynes was a financial economist who gave economic calculation a central role in his theory. But Mises and Keynes adopted different approaches to economic calculation: Mises used the net present value and Keynes used the marginal efficiency of capital. Importantly, Keynes argued that the marginal efficiency of capital and the net present value yield identical results. Keynes was wrong: the marginal efficiency of capital contradicts the net present value, and, therefore, it is a logically defective approach to economic calculation. Consequently, Keynesian economics is not a viable justification for fractional reserve banking.

—Edward W. Fuller, “Keynes and Fractional Reserve Banking: The NPV vs. MEC,” Procesos de Mercado: Revista Europea de Economía Política 15, no. 1 (Spring 2018): 41-42.