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

Bank Credit Expansion and Its Effects on the Economic System 291and harmonious development of society. 25 In short the interestrate conveys to entrepreneurs which new productivestages or investment projects they can and should embark onand which they should not, in order to keep coordinated, asmuch as humanly possible, the behavior of savers, consumers,and investors, and to prevent the different productive stagesfrom remaining unnecessarily short or becoming too long.Finally we must point out that the market rate of interesttends to be the same throughout the entire time market orproductive structure in society, not only intratemporally, i.e., indifferent areas of the market, but also intertemporally, i.e., insome productive stages relatively close to consumption as inother productive stages further from it. Indeed if the interestrate one can obtain by advancing present goods in somestages (for example, those closest to consumption) is higherthan that one can obtain in other stages (for example, thosefurthest from consumption), then the entrepreneurial forceitself, driven by a desire for profit, will lead people to disinvestin stages in which the interest rate or “rate of profit” is lower,relatively speaking, and to invest in stages in which theexpected interest rate or “rate of profit” is higher.THE STRUCTURE OF PRODUCTIONAlthough it is nearly impossible to illustrate with chartsthe extremely complex structure of productive stages thatmake up a modern economy, Chart V-1 represents a simplifiedversion of this structure, and we include it with the purpose ofclarifying the theoretical arguments we will later develop.25 This same idea is focal in Roger Garrison’s latest book, which we readafter the first edition of our book had been published in Spanish. Garrisonstates:[T]he intertemporal allocation may be internally consistentand hence sustainable, or it may involve some systematicinternal inconsistency, in which case its sustainability isthreatened. The distinction between sustainable and unsustainablepatterns of resource allocation is, or should be, amajor focus of macroeconomic theorizing. (Garrison, Time andMoney, pp. 33–34)