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

Bank Credit Expansion and Its Effects on the Economic System 317goods of any stage in the productive structure. Therefore onlya hypothetical consumer loan allocated for financing a household’scurrent expenditure on non-durable consumer goodswould have the effect of immediately and directly increasingfinal current consumption. Nonetheless despite the fact thatrelatively little credit is allotted to final current consumption,the existence of such consumer loans in the market indicatesa certain latent consumer demand for them. Given the connectionbetween all sectors of the market of present andfuture goods, once this residual demand for loans for currentconsumption is satisfied, most real resources saved are freedto be invested in the productive stages furthest from consumption.THE EFFECTS OF VOLUNTARY SAVING ON THEPRODUCTIVE STRUCTUREWe will now explain how the price system and the coordinatingrole of entrepreneurs in a free market spontaneouslychannel decreases in the social rate of time preference and theresulting increases in saving into modifications of society’sstructure of productive stages, making this structure morecomplex and lasting, and in the long run, appreciably moreproductive. In short we will explain one of the most significantcoordinating processes which exist in all economies.Unfortunately, as a result of monetarist and Keynesian economictheories (which we will examine critically in chapter 7),for at least two generations of economists the majority of economicstextbooks and study programs have almost completelyignored this process. Consequently most of today’seconomists are unfamiliar with the functioning of one of themost important processes of coordination present in all marketeconomies. 4343 While studying economics in the late seventies, we noticed that in noEconomic Theory course did the instructor explain how an increase insaving affects the productive structure; professors described only theKeynesian model of the “paradox of thrift,” which as is widely known,outright condemns increases in social saving, because they reduce effectivedemand. Although Keynes did not expressly refer to the “paradox