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

344 Money, Bank Credit, and Economic Cycleswhich demonstrate that this interpretation, based on the oldmyth of underconsumption, is faulty. Indeed, even assumingthat gross national output in monetary terms remains constant,we have shown how society grows and developsthrough an increase in real wages, even when the monetarydemand for consumer goods declines. We have also demonstratedhow, in the absence of state intervention and increasesin the money supply, an immensely powerful market force,driven by entrepreneurs’ search for profit, leads to the lengtheningof and growing complexity in the productive structure.In short, despite the initial relative decrease in the demand forconsumer goods which stems from growth in saving, the productivityof the economic system is boosted, as is the final productionof consumer goods and services, and real wages. 59THE CASE OF AN ECONOMY IN REGRESSIONOur reasoning up to this point can be reversed, withappropriate changes, to explain the effects of a hypothetical59 Rothbard (Man, Economy, and State, pp. 467–79) has revealed that, as aresult of the lengthening of the productive structure (a phenomenon wehave examined and one which follows from an increase in voluntarysaving), it is impossible to determine in advance whether or not theincome capitalists receive in the form of interest will rise. In our detailedexample this does not occur in monetary terms and perhaps not in realterms either. This is due to the fact that, even when saving and grossinvestment grow, we cannot establish, simply on the basis of economictheory, whether or not the value of income derived from interest willfall, rise or remain constant, since each of these alternatives is feasible. Itis also impossible to ascertain what will happen to the monetary incomereceived by owners of the original means of production. In our exampleit stays the same, which results in a dramatic increase in the owners’ realincome once the prices of consumer goods decline. Nonetheless a dropin the income (in monetary terms) received by the owners of the originalmeans of production is possible, although such a drop will alwaysbe less marked than the reduction in the prices of consumer goods andservices. Nowadays it is clearly a challenge for us to conceive of aneconomy in rapid development, yet where the monetary incomereceived by owners of the factors of production (especially labor) diminishes,however this scenario is perfectly feasible if the prices of finalconsumer goods and services fall even faster.