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

Bank Credit Expansion and Its Effects on the Economic System 335approximately 1.70 percent annually) approaches this figure.The net income received by the owners of the original means ofproduction (workers and owners of natural resources) and bythe capitalists of each stage, according to the net interest rateor differential, amounts to 75 m.u., which coincides with themonetary income spent on consumer goods and services. It isimportant to point out that even if only 75 m.u. are spent onconsumer goods and services, i.e., 25 units less than in Chart V-1, once all new production processes are completed, the productionof new final consumer goods and services will increasesubstantially in real terms. This is because production processestend to become more productive as they become more roundaboutand capital-intensive. Moreover a larger quantity, in realterms, of produced consumer goods and services can only besold for a lower total number of m.u. (in our example, 75).Therefore there is a dramatic decline in the unit price of newconsumer goods and services reaching the market, and correspondinglythe income received by owners of the originalmeans of production (specifically, workers’ wages and hence,their living standard) undergoes a sharp increase in real terms.Tables V-3 and V-4 reflect both the supply of and thedemand for present goods, as well as the composition of thegross national output for the year, after all adjustments provokedby the increase in voluntary saving. We see that thesupply of and demand for present goods rests at 295 m.u., i.e.,25 m.u. more than in Table V-1. This is because gross savingand investment have grown by precisely the 25 m.u. of additionalnet saving voluntarily carried out. However as Table V-4 shows, the gross national output for the year remains unalteredat 370 m.u., of which 75 m.u. correspond to the demandfor final consumer goods, and 295 m.u. to the total supply ofpresent goods. In other words, even though the gross nationaloutput is identical in monetary terms to its value in the lastexample, it is now distributed in a radically different manner: overa narrower and more elongated productive structure (that is,a more capital-intensive one with more stages).The distinct distribution of the same gross national output(in monetary terms) in each of the two productive structuresis more apparent in Chart V-4.