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

322 Money, Bank Credit, and Economic Cyclesnational output, which encompasses all stages of the productionprocess. Therefore the fact that accounting losses occur in the finalstage does not immediately affect the stages prior to consumption,in which a positive difference continues to exist betweenincome and expenditures, a difference similar to the one whichpreceded the increase in saving. Only after a prolonged period oftime will the depressive effect which the rise in saving exerts uponthe final stage (that of consumer goods) begin to be felt in thestages closest to it, and this negative influence will increasinglyweaken as we “climb” to productive stages relatively more distantfrom final consumption. At any rate the accounting profits ofthe stages furthest from consumption will tend to remain constant,as shown in Chart V-2, stage five, period of time t. Here weobserve that activity in this stage continues to yield an accountingprofit of 11 percent, the result of a total income of 20 m.u. and totalexpenses of 18 m.u. Hence the increase in saving clearly gives riseto a great disparity between the accounting profits received bycompanies devoted to the first stage, that of consumer goods,and those earned by companies operating in the stages furthestfrom final consumption (in our example, the fifth stage in theproductive structure). In the consumer goods sector an accountingloss follows from the upsurge in saving, while the industriesof the fifth stage, which are further from consumption (now arehelping to produce consumer goods that only will be availablefive years from now), continue to enjoy profits roughly equal to 11percent of the capital invested (the current decrease in consumptiondoes not affect consumption five years from now).This disparity in profits acts as a warning sign and an incentivefor entrepreneurs to restrict their investments in the stagesclose to consumption and to channel these resources into otherstages which still offer relatively higher profits and which are,given the circumstances, the stages furthest from final consumption.Therefore entrepreneurs will tend to transfer a portionof their demand for productive resources, in the form ofcapital goods and primary factors of production, from the finalstage (consumption) and those closest to it, to the stages furthestfrom consumption, where they discover they can still obtaincomparatively much higher profits. The increased investmentor demand for more productive resources in the stages furthestfrom consumption produces the effect shown in ChartV-2 for stage five, period of time t+1. Indeed entrepreneurs