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

Bank Credit Expansion and Its Effects on the Economic System 353consumers continue to consume at a steady (or evenincreased) pace and do not worry about stepping up their saving.69To illustrate the initial effect credit expansion exerts on thereal productive structure, we will follow the system used inthe last section to present several graphs and tables whichreflect the impact of credit expansion on the productive structure.A word of caution is necessary, however: it is practicallyimpossible to represent in this way the complex effects producedin the market when credit expansion triggers the generalizedprocess of discoordination we are describing. Thereforeit is important to exercise great care in interpreting thefollowing tables and charts, which should only be valuedinsofar as they illustrate and facilitate understanding of thefundamental economic argument. It is nearly impossible toreflect with charts anything other than strictly static situations,since charts invariably conceal the dynamic processes whichtake place between situations. Nonetheless the tables andgraphs we propose to represent the stages in the productivestructure may well help illustrate the essential theoretical argumentand greatly facilitate an understanding of it. 7069 Roger Garrison interprets this phenomenon as an unsustainabledeparture from the production possibilities frontier (PPF). See his book,Time and Money, pp. 67–76.70 Our intention is to warn readers of the error which threatens anyonewho might attempt to make a strictly theoretical interpretation of thecharts we present. Nicholas Kaldor committed such an error in his criticalanalysis of Hayek’s theory, as was revealed by Laurence S. Moss andKaren I. Vaughn, for whomthe problem is not to learn about adjustments by comparingstates of equilibrium but rather to ask if the conditionsremaining at T1 make the transition to T2 at all possible.Kaldor’s approach indeed assumed away the very problemthat Hayek’s theory was designed to analyze, the problem ofthe transition an economy undergoes in moving from onecoordinated capital structure to another.See their article, “Hayek’s Ricardo Effect: A Second Look,” p. 564. Thearticles in which Kaldor criticizes Hayek are “Capital Intensity and theTrade Cycle,” Economica (February 1939): 40–66; and “Professor Hayek