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

Bank Credit Expansion and Its Effects on the Economic System 279Therefore it is clear that, just as the difference between the“rich” Robinson Crusoe with the stick and the “poor” RobinsonCrusoe without it lay in the capital good the former hadobtained through prior saving, the essential differencebetween rich societies and poor societies does not stem fromany greater effort the former devote to work, nor even fromany greater technological knowledge the former hold. Insteadit arises mainly from the fact that rich nations possess a moreextensive network of capital goods wisely invested from an entrepreneurialstandpoint. These goods consist of machines, tools, computers,buildings, semi-manufactured goods, software, etc., and theyexist due to prior savings of the nation’s citizens. In other words,comparatively rich societies possess more wealth becausethey have more time accumulated in the form of capital goods,which places them closer in time to the achievement of muchmore valuable goals. There is no doubt that an Americanworker earns a much higher wage than an Indian worker, butthis is chiefly because the former has at his disposal and usesmany more capital goods (tractors, computers, machines, etc.)than the Indian worker, and the goods he uses are of muchhigher quality. To put it another way, the longer the productionprocess, the more productive it tends to be, as we haveseen. The modern tractor plows the earth much more productivelythan the Roman plow. Nevertheless the tractor is a capitalgood whose production requires a set of stages much morenumerous, complex and lengthy than those necessary to producea Roman plow.Capital goods in the extremely complex network whichcomposes the real productive structure of a modern economyare not perpetual, but are always temporary in the sense thatthey are physically used up or consumed during the productionprocess, or they become obsolete. In other words, wear oncomplexity of both processes as well as the significant number of stagesthey comprise and the very prolonged time period they require. Thistype of flow chart can be used to provide a simplified description of theactivity in any other sector or industry. Skousen takes the diagrams ofthe above-mentioned industries from the book by E.B. Alderfer and H.E.Michel, Economics of American Industry, 3rd ed. (New York: McGraw-Hill, 1957).