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

Bank Credit Expansion and Its Effects on the Economic System 311stages is not guaranteed, but results from a constant, uncertainseries of concrete entrepreneurial decisions which depend onexpected accounting profits and on the social rate of time preferenceor interest rate. The use of GNP in national incomeaccounting almost inevitably implies that production is instantaneousand requires no time, i.e., that there are no intermediatestages in the production process and that time preference isirrelevant with respect to determining the interest rate. In shortthe standard measures of national income completely do awaywith the largest, most significant part of the production process,and moreover they do so in a disguised manner, since, paradoxicallyand despite the label “gross,” they cause non-experts(and even most experts) in the field to overlook the most significantpart of each country’s productive structure. 39If national income accounting measures were modifiedand made truly “gross,” they would include all intermediate39 As Murray Rothbard indicates, the net quality of GNP invariablyleads one to identify capital with a perpetual fund that reproduces byitself without the need for any particular decision-making on the part ofentrepreneurs. This is the “mythological” doctrine defended by J.B.Clark and Frank H. Knight, and it constitutes the conceptual basis forthe current national income accounting system. Thus this system is simplythe statistical, accounting manifestation of the mistaken understandingof capital theory promoted by these two authors. Rothbardconcludes: “To maintain this doctrine it is necessary to deny the stageanalysis of production and, indeed, to deny the very influence of time inproduction” (Rothbard, Man, Economy, and State, p. 343). Furthermorethe current method of calculating GNP also strongly reflects Keynes’sinfluence, enormously exaggerating the importance of consumption inthe economy and conveying the false impression that the most significantportion of the national product exists in the form of consumergoods and services, instead of investment goods. In addition thisexplains why most agents involved (economists, businessmen,investors, politicians, journalists, and civil servants) have a distortedidea of the way the economy functions. Since they believe the sector offinal consumption to be the largest in the economy, they very easily concludethat the best way to foster the economic development of a countryis to stimulate consumption and not investment. On this point seeHayek, Prices and Production, pp. 47–49, esp. note 2 on p. 48, Skousen,The Structure of Production, p. 190, and also George Reisman, “The Valueof ‘Final Products’ Counts Only Itself,” American Journal of Economics andSociology 63, no. 3 (July 2004): 609– 25, and Capitalism (Ottawa, Ill.: JamesonBook, 1996), pp. 674ff. See also next footnote 55.