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

Bank Credit Expansion and Its Effects on the Economic System 377microeconomic processes examined above invariably andspontaneously bring to light the error committed. This errorderives from the fact that for a prolonged period of time economicagents believed available savings to be much more considerablethan they actually were. This situation is very similarto the one in which our Robinson Crusoe from section 1would find himself if, having saved a basket of berries largeenough to permit him to spend a maximum of five days producinga capital good without having to devote himself to thecollection of more berries, through an error in calculation 86 hewere to believe that this amount of savings would allow himto undertake the construction of his cabin. After five daysspent just digging the foundations and gathering materials, hewould have consumed all of his berries and would thereforebe unable to complete his illusory investment project. Miseslikens the general error committed to the one a builder wouldmake if he were to misjudge the amount of materials availableto him and use them all up laying the foundations of a building,which he would then be forced to leave unfinished. 87 AsHayek puts it, we are thus dealing with a crisis of overconsumption,or in other words, insufficient saving. It has become86 Precisely for this reason we have argued elsewhere that businesscycles are a practical example of the errors in economic calculationwhich result from state interventionism in the economy (in this case inthe monetary and credit field). See Huerta de Soto, Socialismo, cálculoeconómico y función empresarial, pp. 111ff. In other words, we could considerthe entire content of this book as simply the application of the theoremof the impossibility of socialist economic calculation to the particularcase of the credit and financial sector.87 The whole entrepreneurial class is, as it were, in the positionof a master-builder whose task it is to erect a building out ofa limited supply of building materials. If this man overestimatesthe quantity of the available supply, he drafts a plan forthe execution of which the means at his disposal are not sufficient.He oversizes the groundwork and the foundationsand only discovers later in the progress of the constructionthat he lacks the material needed for the completion of thestructure. It is obvious that our master-builder’s fault was notoverinvestment, but an inappropriate employment of themeans at his disposal. (Mises, Human Action, p. 560)See also the curious Biblical reference in Luke 14, 28–30.