Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

176 Money, Bank Credit, and Economic CyclesThis income statement reflects an entrepreneurial profitfor the year of 50,000 m.u., a net income derived from the differencebetween the year’s revenue (150,000 m.u. in interestreceived) and the year’s expenses (100,000 m.u. in interestpaid).At the end of the year, Bank A’s balance sheet wouldappear as follows:(6) Bank ABalance Sheet(End of the year)AssetsLiabilitiesCash 50,000 Owner’s equity 50,000(Profit for the year)Total Assets 50,000 Total Liabilities 50,000If we look at the balance sheet drawn up at the very end ofthe year, we see that the bank’s assets include 50,000 m.u. availablein the cash account that correspond to the year’s profit,which has been placed in the corresponding owner’s equityaccount (capital and retained earnings) under Liabilities.The following points recapitulate our description inaccounting terms of a banking activity based on receiving andgranting a loan or mutuum: one, for one year the originallender relinquished the availability of 1,000,000 m.u, presentgoods; two, the availability of this money was transferred toBank A for exactly the same time period; three, Bank A discoveredan opportunity to make a profit, since its managers knewof a borrower, Business Z, which was willing to pay a higherinterest rate than the one the bank had agreed to pay; four, thebank granted a loan to Business Z, relinquishing in turn theavailability of 1,000,000 m.u. for one year; five, Business Zobtained the availability of the 1,000,000 m.u. for one year inorder to expand its activities; six, therefore, for the period ofone year, the number of m.u. did not vary, as they were simplytransferred from the original lender to Business Z via the