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

Bank Credit Expansion and Its Effects on the Economic System 295These pyramids represent cross-sections of the real population,which is classified by ages. In them we can also see the changein the number of people of each age who remain alive (mortalitytable); this second interpretation means viewing the stagesas consecutive. 28The arrows in our diagram represent the flows of monetaryincome which at each stage in the production process reachthe owners of the original means of production (labor and naturalresources) in the form of wages and rents, and the ownersof capital goods (capitalists or savers) in the form of interest(or accounting profit). Indeed if we begin at the first stagein our example, consumers spend 100 m.u. on consumergoods, and this money becomes the property of the capitalistswho own the consumer goods industries. One year earlier,these capitalists had advanced from their savings 80 m.u. correspondingto the services of fixed capital goods and to circulatingcapital goods produced by other capitalists in the secondstage of the production process. The first capitalists alsopay 10 m.u. to the owners of the original means of production(labor and natural resources) which they hire directly in thelast stage, corresponding to the production of consumer goods(this payment to the owners of the original means of productionis represented on our chart by the vertical arrow thatbegins to the right of the last step [100 m.u.] and extends tothe upper right-hand box containing 10 m.u.). Since the capitalistsof the consumer goods stage advanced eighty m.u. tothe owners of the capital goods of the second stage, and tenm.u. to workers and owners of natural resources (a total of 90m.u.), at the end of one year when these capitalists sell the28 The inventory of capital constitutes, so to speak, a cross sectionof the many processes of production which are of varyinglength and which began at different times. It thereforecuts across them at very widely differing stages of development.We might compare it to the census which is a cross sectionthrough the paths of human life and which encountersand which arrests the individual members of society atwidely varying ages and stages. (Böhm-Bawerk, Capital andInterest, vol. 2: Positive Theory of Capital, p. 106)In the original edition, this quotation appears on p. 115.