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

Bank Credit Expansion and Its Effects on the Economic System 281become utterly useless or they may be useful only after acostly conversion. The actor could also find a way to use thegoods, yet still feel that had he known in advance they wouldeventually be needed in a different production process, hewould have made them in quite a different way. Finally, it isvery rare for a capital good to be so removed from consumption,or for the circumstances to be such, that the good is perfectlyuseful in any alternative project.Thus we see the influence of the past on actions carried outtoday. Action, as we have defined it, is always prospective,never retrospective; and an actor considers a good a capitalgood based on a planned future action, not on the good’smaterial properties nor on former action projects. 15 Neverthelessthe past undoubtedly influences future action, to the extentthat it determines the current starting point. Humans commitcountless entrepreneurial errors when conceiving, undertaking,and completing their actions; and consequently, theyembark on subsequent actions from a present position theywould have attempted to make different had they knownabout it in advance. However once events have unfolded in acertain way, humans always strive to make the best of theirpresent circumstances with a view to accomplishing their goalsfor the future. While capital goods are difficult to convert,15 For this reason Hayek is especially critical of the traditional definitionof a capital good as an intermediate good produced by humans, a definitionhe considersa remnant of the cost of production theories of value, of theold views which sought the explanation of the economicattributes of a thing in the forces embodied in it. . . . Bygonesare bygones in the theory of capital no less than elsewhere ineconomics. And the use of concepts which see the significanceof a good in past expenditure on it can only be misleading.Hayek, The Pure Theory of Capital, p. 89. Hayek concludes thatFor the problems connected with the demand for capital, thepossibility of producing new equipment is fundamental. Andall the time concepts used in the theory of capital, particularlythose of the various investment periods, refer to prospectiveperiods, and are always “forward-looking” and never “backward-looking.”(Ibid., p. 90)