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

314 Money, Bank Credit, and Economic Cyclesare exchanged for future goods encompasses society’s entirestructure of productive stages, such increases in saving andtheir manifestation in new investments are often the mostimportant in society.Second, owners of the original means of production (workersand owners of natural resources) may decide not to consume,as in the past, the entire sum of their social net income(which in Chart V-1 was 70 m.u.). They may instead decide toreduce their consumption beginning at a certain point and toinvest the m.u. they no longer spend on final consumer goodsand services, in the productive stages they decide to launchdirectly as capitalists (a category which includes members ofcooperatives). Though this procedure takes place in the market,the resulting savings are not normally very substantial inreal life.Third, it could occur that both the owners of the originalmeans of production (workers and the owners of naturalresources) as well as capitalists (to the extent they receive netincome in the form of accounting profits or market interest)decide beginning at a certain point not to consume their entirenet income, but to loan a portion of it to capitalists of the differentstages in the production process, enabling them tobroaden their activities by purchasing more capital goodsfrom prior stages and more natural resources, and by hiringmore labor. This third procedure is carried out through thecredit market, which, despite being the most visible and conspicuousin real economic life, is of secondary importance andplays a subsidiary role in relation to the more general market in(10 m.u.) are smaller than profits representing 8 percent of 150 m.u. (12m.u.). Even though the interest rate or rate of accounting profitdecreases as the result of the weaker time preference which causes anincrease in saving and investment, in absolute terms the accountingprofits rise by 20 percent, i.e., from 10 to 12 m.u. This is what generallyoccurs in the stages furthest from consumption during the process weare considering. Regarding the stages closest to consumption, it isimportant to remember that, as we will indicate in the main text, thecomparison is not drawn with past profits, but with an estimate of thosewhich would have been produced had the entrepreneurial investmentstrategy not been modified.