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

296 Money, Bank Credit, and Economic Cyclesconsumer goods for 100 units, they obtain an accountingprofit or interest derived from having advanced 90 m.u. fromsavings a year earlier. This difference between the totalamount they advanced, 90 m.u. (which they could have consumed,yet they saved and invested it), and the amount theyreceive at the end of a year, 100 m.u., is equal to an interest rateof approximately 11 percent per year (10:90 = 0.11). From anaccounting standpoint, this sum appears as profit on theincome statement drawn up to reflect the entrepreneurialactivity of capitalists of the consumer goods stage (representedby the box at the lower right-hand corner of Chart V-1).We can follow the same reasoning with respect to the restof the stages. Hence for example, the capitalists who own theintermediate goods of the third stage advanced at the beginningof the period 40 m.u. in payment for capital goods producedin the fourth stage, as well as 14 m.u. to owners of theoriginal means of production (labor and natural resources). Inexchange for the 54 m.u. they have advanced, the capitalistsbecome owners of the product which, once it is finished, theysell to capitalists of the second stage for 60 m.u., earning a differentialof six m.u., which is their accounting profit or interest;it is also close to 11 percent. This pattern repeats itself ineach stage.The upper portion of the chart shows the amounts whichthe capitalists advance at each stage to the original means ofproduction (workers and owners of natural resources) andwhich add up to a total of 70 m.u. (18+16+14+12+10=70 m.u.).In a column on the right-hand side, we indicate the monetarysums obtained as accounting profits at each stage. These profitsreflect the accounting difference between the m.u.advanced by the capitalists of each stage and those theyreceive for the sale of their product in the following stage. Aswe know, this accounting profit tends to coincide with theinterest derived from the amount the capitalists of each stagesave and advance to capitalists of earlier stages and to theowners of the original means of production. The total of theaccounting differences between income and expenses at eachstage adds up to 30 m.u., which when added to the 70 m.u.received by the original means of production, equals 100 m.u.