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

Bank Credit Expansion and Its Effects on the Economic System 315which present goods are exchanged for future goods throughself-financing or capitalists’ direct reinvestment of presentgoods in their productive stages (the first and second proceduresof saving-investment mentioned above). Though thissystem of saving is important, it is usually secondary to thefirst two procedures for increasing saving we describedabove. Nevertheless a very strong connection exists betweenthe flows of saving and investment of both procedures, andin fact both sectors of the “time market”—the general sectorof the productive structure and the particular sector of thecredit market—behave as if they were communicating vessels.ACCOUNT RECORDS OF SAVINGS CHANNELLED INTO LOANSFrom an economic standpoint, all three of these proceduresfor increasing saving invariably entail the following: anincrease in the supply of present goods by savers, who transferthese present goods to the owners of original resources andmaterial means of production (capital goods) from previousproductive stages. For instance, if we follow the accountingexample from chapter 4, which involves the third proceduredescribed above, the following journal entries result:The saver who loans his resources in the form of presentgoods records this entry in his journal:(72) Debit Credit1,000,000 Loan granted Cash 1,000,000This entry is clearly the accounting record of the fact thatthe saver offers 1,000,000 m.u. of present goods, which herelinquishes. In doing so he loses the complete availability ofthe goods and transfers it to a third person; for instance, theentrepreneur of a certain productive stage. The entrepreneurreceives the m.u. as a loan, which he records in his journal viathe following entry: