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

Bank Credit Expansion and Its Effects on the Economic System 301processes and of the increase in their number of stages consistsprecisely of the production of a larger number of durableconsumer goods of increasing quality and durability. 335. The trend toward the equalization of the rate of accountingprofit or interest at each stage.The fifth fundamental point we must emphasize is the following:In the market there exists a trend (driven by the forceof entrepreneurship) toward the equalization of the “rate ofprofit” in all economic activities. This occurs not only horizontally,within each production stage, but also vertically,between stages. Indeed when there are disparities in profits,businessmen will devote their effort, creative capacity andinvestment to those activities which generate relativelyhigher profits, and they will stop devoting these things toactivities which yield lower profits. Significantly, in the examplefrom Chart V-1, the rate of accounting profit, or relativedifference between income and expenses, is the same at eachstage, i.e., approximately 11 percent per year. If the situationwie der Werth künftiger Güter.” See Kapital und Kapitalzins, vol. 2: PositiveTheorie des Kapitales, p. 365. In Spain José Castañeda Chornet revealsthat perhaps he has been the one who has best understood this essentialidea when he affirms thatDurable consumer goods, which generate a flow of consumerservices over time, may be included in an economy’s fixedcapital. In a strict sense they constitute fixed consumer capital,not productive capital. So capital, in a broad sense, comprisesproductive or true capital as well as consumer capital, or capitalfor use. (Castañeda, Lecciones de teoría económica, p. 686)33 Roger W. Garrison has put forward the additional argument that allconsumer goods for which a secondhand market exists should be classified,from an economic standpoint, as investment goods. In fact consumergoods classified as “durable” simultaneously form a part of consecutivestages in the production process, although they legally belongto “consumers,” since consumers take care of, protect and maintainthem in their productive capacity so they will render direct consumerservices over a period of many years. Roger Garrison, “The Austrian-Neoclassical Relation: A Study in Monetary Dynamics,” doctoral thesispresented at the University of Virginia, 1981, p. 45. On the possibilityand convenience of representing consumer durables in our chart, seeGarrison, Time and Money, pp. 47–48.