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

398 Money, Bank Credit, and Economic Cyclesexpansion and which reverse the artificial boom that creditexpansion initially creates. In fact in such a case there is noincrease in the price of the original means of production. Onthe contrary, if the loans originate from an upsurge in real saving,the relative decrease in immediate consumption whichthis saving invariably entails frees a large volume of productiveresources in the market of original means of production.These resources become available for use in the stages furthestfrom consumption and there is no need to pay higher prices forthem. In the case of credit expansion we saw that prices roseprecisely because such expansion did not arise from a priorincrease in saving, and therefore original productive resourceswere not freed in the stages close to consumption, and theonly way entrepreneurs from the stages furthest from consumptioncould obtain such resources was by offering relativelyhigher prices for them.In addition, if the lengthening of the productive structurederives from growth in voluntary saving, there is no increasein the price of consumer goods which is more than proportionalto a corresponding increase in the price of the factors ofproduction. Quite the opposite is true; at first there tends to bea sustained drop in the price of these goods. Indeed a rise insaving always involves a certain short-term drop in consumption.Hence there will be no relative increase in the accountingprofits of the industries closest to consumption, nor a decreasein the profits, or even an accounting loss, in the stages furthestfrom consumption. Therefore the process will not reverse andthere will be nothing to provoke a crisis. Moreover as we sawin chapter 5, the “Ricardo Effect” plays a role, as it becomesadvantageous for entrepreneurs to substitute capital equipmentfor labor, due to the growth in real wages following therelative decrease in the price of consumer goods, which inturn tends to arise from an upsurge in saving. Market rates ofinterest do not mount; on the contrary, they tend to declinepermanently, reflecting society’s new rate of time preference,now even lower, given the increased desire to save. Furthermoreif a component is to be included in the market interestrate to compensate for a change in the purchasing power ofmoney, when voluntary saving climbs, the component will be