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

Additional Considerations on the Theory of the Business Cycle 399negative. This is because, as we have seen, the tendency istoward a fall in the price of consumer goods (in the short- andlong-term), which tends to drive up the purchasing power ofmoney, an event which will exert even further downwardpressure on nominal interest rates. In addition economicgrowth based on voluntary saving is healthy and sustained,and therefore entrepreneurial and risk components implicit inthe interest rate will also tend to drop.The above considerations confirm that the recessionalways originates from an absence of the voluntary savingnecessary to sustain a productive structure which thus provestoo capital-intensive. The recession is caused by the creditexpansion the banking system undertakes without the correspondingsupport of economic agents, who in general do notwish to augment their voluntary saving. Perhaps Moss andVaughn have most concisely expressed the conclusion of theentire theoretical analysis of this process:Any real growth in the capital stock takes time and requiresvoluntary net savings. There is no way for the expansion ofthe money supply in the form of bank credit to short-circuitthe process of economic growth. 1THE POSSIBILITY OF POSTPONING THE ERUPTIONOF THE CRISIS: THE THEORETICAL EXPLANATIONOF THE PROCESS OF STAGFLATIONThe arrival of the economic recession can be postponed ifadditional loans unbacked by real saving are granted at anever-increasing rate, i.e., if credit expansion reaches a speedat which economic agents cannot completely anticipate it.The procedure consists of administering additional doses ofbank credit to the companies which have launched newinvestment projects and have widened and lengthened thestages in the production process. This new credit may defer21 Moss and Vaughn, “Hayek’s Ricardo Effect: A Second Look,” p. 555.See also footnote 91 on p. 382.