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

304 Money, Bank Credit, and Economic Cycles7. Gross and net income for the year.Seventh, we could view Chart V-1, our outline of the differentstages in the production process, as an illustration of theflow of both capital goods and money. Indeed capital goods“flow downward,” i.e., from the stages furthest from consumptionto the stages closest to it, and money “flows” in theopposite direction. In other words, m.u. are first used to payfor final consumer goods, and from that point they graduallymove up the scale of productive stages until they reach thosestages furthest from consumption. Therefore to obtain thegross monetary income for the period, we total, from bottomto top, all of the transactions (in terms of m.u.) conducted duringthe period. Details appear in Table V-2.We see from this table that the gross income for the periodis equal to 370 m.u. Of this amount, 100 m.u. correspond to netincome, which is spent entirely on final consumer goods; and270 m.u. correspond to the total supply of present goods orgross saving, which coincides with the total gross demand forpresent goods during the period. The following relationshipexists between gross income and net income for the period,according to the calculation made in Table V-2: gross incomeis equal to 3.7 times the net income for the period. That is, arelationship exists between the number of m.u. spent on consumergoods and the much larger number spent on capitalgoods. This proportion is represented in Chart V-1 by thehe first recorded for each stage of production the value in “years oflabor” of the products of the corresponding stage). Later, in 1929, F.A.Hayek performed the same task with greater precision in his article“Gibt es einen ‘Widersinn des Sparens’?” (Zeitschrift Für Nationalökonomie,Bd. 1, Heft 3, 1929), which was translated with the title “The‘Paradox’ of Saving” and published in English in Economica (May 1931)and later included as an appendix to the book, Profits, Interest and Investmentand Other Essays on the Theory of Industrial Fluctuations, 1st ed. (London:George Routledge and Sons, 1939 and Clifton, N.J.: Augustus M.Kelley, Clifton 1975), pp. 199–263, esp. pp. 229–31. As Hayek himselfadmits, it was precisely the desire to simplify the awkward presentationof these tables that led him to introduce the chart of production stageswe have displayed in Chart V-1 (see Prices and Production, p. 38, note 1).