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

Bank Credit Expansion and Its Effects on the Economic System 309production of capital goods. Indeed GNP incorporates the valueof the sales of fixed or durable capital goods, such as real estate,industrial vehicles, machinery, tools, computers, etc., which arefinished and sold to their final users during the year, and thusare considered final goods. However it in no way includes thevalue of circulating capital goods, intermediate non-durableproducts, nor of capital goods which are not yet finished or if so,pass from one stage to another during the process of production.These intermediate goods are obviously different from the similarones included in final goods (for instance, the carburator producedas an intermediate product is not the same carburatorincluded in the car sold as a final product.) In contrast, our grossoutput figure from Table V-2 incorporates the gross productionof all capital goods, whether completed or not, fixed, durable orcirculating, as well as all consumer goods and services producedduring the financial year.and net value added, which excludes it. Consequently bothproduct and income can be gross or net, depending uponwhether they include or exclude depreciation. (p. 39)As we see, the label “gross” is used to describe a figure that continues tobe net, given that it excludes the entire value of intermediate inputs.National income accounting textbooks have not always ignored the fundamentalimportance of intermediate products. The classic work, TheSocial Framework of the American Economy: An Introduction to Economics, byJ.R. Hicks and Albert G. Hart (New York: Oxford University Press, 1945),includes an explicit reference to the great importance of the time span inany process of production of consumer goods (the concrete example usedis that of the production of a loaf of bread). The authors give a detailedexplanation of the different stages of intermediate products necessary toarrive at the final consumer good. Hicks and Hart conclude (pp. 33–34):The products which result from these early stages are usefulproducts, but not products which are directly useful for satisfyingthe wants of consumers. Their use is to be found in theiremployment in the further stages, at the end of which a productwhich is directly wanted by consumers will emerge. . . . Aproducers’ good may be technically finished, in the sense thatthe particular operation needed to produce it is completed. . . .Or it may not be technically finished, but still in process, evenso far as its own stage is concerned. In either case it is a producers’good, because further stages are needed before theresult of the whole process can pass into the consumers’hands. The consumers’ good is the end of the whole process; producers’goods are stages on the road toward it. (Italics added)