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

350 Money, Bank Credit, and Economic Cyclesof profitability to investment projects which until that pointwere not profitable, giving rise to new stages further fromconsumption. The process through which these stages comeinto existence closely resembles the one involved when society’svoluntary saving actually increases. Nevertheless wemust emphasize that although the initial effects may be verysimilar to those which, as we saw, follow an upsurge in voluntarysaving, in this case the productive stages are lengthened andwidened 65 only as a consequence of the easier credit terms banks offerat relatively lower interest rates yet without any previous growth involuntary saving. As we know, a sustainable lengthening of theproductive structure is only possible if the necessary priorsaving has taken place in the form of a drop in the finaldemand for consumer goods. This drop permits the differentproductive agents to sustain themselves using the unsold consumergoods and services while the new processes introducedreach completion and their more productive result begins toreach the market in the form of consumer goods. 66In short, entrepreneurs decide to launch new investmentprojects, widening and lengthening the capital goods stages in65 When under the conditions of credit expansion the wholeamount of the additional money substitutes is lent to business,production is expanded. The entrepreneurs embark eitherupon lateral expansion of production (viz., the expansion ofproduction without lengthening the period of production inthe individual industry) or upon longitudinal expansion(viz., the lengthening of the period of production). In eithercase, the additional plants require the investment of additionalfactors of production. But the amount of capital goodsavailable for investment has not increased. Neither doescredit expansion bring about a tendency toward a restrictionof consumption. (Ibid., p. 556)66 A lengthening of the period of production is only practicable,however, either when the means of subsistence haveincreased sufficiently to support the laborers and entrepreneursduring the longer period or when the wants of producershave decreased sufficiently to enable them to make thesame means of subsistence do for the longer period. (Mises,The Theory of Money and Credit, p. 400)