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

Bank Credit Expansion and Its Effects on the Economic System 275his effort in relation to the goal he longs to achieve. So hedecides to reduce his consumption (in other words, to save)for several weeks while storing his leftover berries in a basketuntil he has accumulated an amount he believes will be sufficientto sustain him while he produces the stick.This example shows that each process of investment incapital goods requires prior saving; that is, a decrease in consumption,which must fall below its potential level. 13 OnceRobinson Crusoe has saved enough berries, he spends fivedays searching for a branch from which to make his woodenstick, separating it from the tree and perfecting it. What doeshe eat during the five days it takes him to prepare the stick, aproduction process which forces him to interrupt his dailyharvest of berries? He simply consumes the berries he accumulatedin the basket over the preceding several-week periodduring which he saved the necessary portion from his handpickedberries and experienced some hunger. In this way, ifRobinson Crusoe’s calculations were correct, at the end of fivedays he will have the stick (a capital good), which representsan intermediate stage removed in time (by five days of saving)from the immediate processes of the berry production (byhand) which up to that point had occupied him. With the finishedstick Robinson Crusoe can reach places inaccessible tohim by hand and strike the bushes with force, multiplying hisproduction of berries by ten. As a result, from that point on hisstick enables him to gather in one-tenth of a day the berries he13 Saving always results in capital goods, even when initially thesemerely consist of the consumer goods (in our example the “berries”)which remain unsold (or are not consumed). Then gradually some capitalgoods (the berries) are replaced by others (the wooden stick), as theworkers (Robinson Crusoe) combine their labor with natural resourcesthrough a process which takes time and which humans are able to gothrough due to their reliance on the unsold consumer goods (the savedberries). Hence saving produces capital goods first (the unsold consumergoods that remain in stock) which are gradually used up andreplaced by another capital good (the wooden stick). On this importantpoint, see Richard von Strigl, Capital and Production, edited with anintroduction by Jörg Guido Hülsmann (Auburn, Ala.: Mises Institute,2000), pp. 27 and 62.