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

266 Money, Bank Credit, and Economic Cyclesthe processes spontaneously set in motion in an economic systemwhen new loans originate from a voluntary increase in society’sreal saving; then in contrast and by comparison it will be easierto understand what happens when banks create loans ex nihilothrough a process of credit expansion.1THE FOUNDATIONS OF CAPITAL THEORYIn this section we will examine the basic tenets of capitaltheory which are essential to understanding the effects creditexpansion exerts on the economic system. 1 We will begin byconsidering the subjectivist conception of human action as aseries of productive stages intended to achieve an end.HUMAN ACTION AS A SERIES OF SUBJECTIVE STAGESWe may begin by defining human action as any deliberatebehavior or conduct. 2 A person acts to attain certain goalshe/she feels are important. Value refers to the degree of subjectiveappreciation the actor assigns his goal, and the means isanything the actor subjectively considers adequate to accomplishit. Utility represents the subjective appraisal the actormakes of the means, in terms of the value of the goal he1 The capital theory we will expound is the key to understanding howbank credit expansion distorts the economy’s real productive structure.In fact the usual error of the critics of the Austrian theory of the businesscycle (also called the circulation credit theory), which we present here,is that they fail to take capital theory into account. This is the case, forexample, with Hans-Michael Trautwein and his two papers: “Money,Equilibrium, and the Business Cycle: Hayek’s Wicksellian Dichotomy,”History of Political Economy 28, no. 1 (Spring, 1996): 27–55, and “Hayek’sDouble Failure in Business Cycle Theory: A Note,” chapter 4 of Moneyand Business Cycles: The Economics of F.A. Hayek, M. Colonna and H.Hagemann, eds. (Aldershot, U.K.: Edward Elgar, 1994), vol. 1, pp. 74–81.2 On the concepts of human action, plans of action, the subjective conceptionof time, and action understood as a set of successive stages, seeHuerta de Soto, Socialismo, cálculo económico y función empresarial, pp.43ff.