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

286 Money, Bank Credit, and Economic Cyclesprecisely the savers; that is, all those relatively more willing torelinquish immediate consumption in exchange for goods ofgreater value in the future. The buyers of present goods are allthose who consume immediate goods and services (be theyworkers, owners of natural resources or capital goods, or anycombination of these). Indeed the market of present andfuture goods, in which the interest rate is determined, consistsof society’s entire structure of productive stages, in which savers orcapitalists give up immediate consumption and offer presentgoods to owners of the primary or original factors of production(workers and owners of natural resources) and to ownersof capital goods, in exchange for the full ownership ofconsumer (and capital) goods of a supposedly higher valueonce the production of these goods has been completed in thefuture. If we eliminate the positive (or negative) effect of pureentrepreneurial profits (or losses), this difference in valuetends to coincide with the interest rate.State: A Treatise on Economic Principles, 3rd ed. (Auburn, Ala.: Ludwigvon Mises Institute, 1993), chaps. 5–6, pp. 273–387. In any case the interestrate is determined in the same way as any other market price. Theonly difference lies in the fact that, rather than reflect an establishedprice for each good or service in terms of m.u., the interest rate is basedon the sale of present goods in exchange for future goods, each in theform of m.u. Although we defend the idea that the interest rate is determinedexclusively by time preference (i.e., by the subjective valuationsof utility which time preference entails), the acceptance of another theory(for example, that to a greater or lesser degree the interest rate is setby the marginal productivity of capital) does not affect this book’sessential argument concerning the disruptive effects which banks’expansive creation of loans has on the productive structure. In thisregard, Charles E. Wainhouse states:Hayek establishes that his monetary theory of economic fluctuationsis consistent with any of the “modern interest theories”and need not be based on any particular one. The key isthe monetary causes of deviations of the current from theequilibrium rate of interest.“Empirical Evidence for Hayek’s Theory of Economic Fluctuations,”chapter 2 in Money in Crisis: The Federal Reserve, the Economy and MonetaryReform, Barry N. Siegel, ed. (San Francisco: Pacific Institute for PublicPolicy Research, 1984), p. 40.