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

Additional Considerations on the Theory of the Business Cycle 411each historical case. In fact if those whose income rises (thosewho first receive the new money created) consume a proportionof it greater than that previously consumed by thosewhose real income falls, then overall saving will drop. It isalso conceivable that those who benefit may have a stronginclination to save, in which case the final amount of savingmight be increased. At any rate the inflationary processunleashes other forces which impede saving: inflation falsifieseconomic calculation by generating fictitious accounting profitswhich, to a greater or lesser extent, will be consumed.Therefore it is impossible to theoretically establish in advancewhether the injection of new money into circulation at specificpoints in the economic system will result in a rise or a declinein society’s overall saving. 11In a strict sense, “forced saving” denotes the lengthening(longitudinal) and widening (lateral) of the capital goods11 Joseph A. Schumpeter attributes the appropriate expression “forcedsaving” (in German, Erzwungenes Sparen or Zwangssparen) to Ludwigvon Mises in his book, The Theory of Economic Development, first publishedin German in 1911 (The Theory of Economic Development [Cambridge,Mass.: Harvard University Press, 1968], p. 109). Mises acknowledgeshaving described the phenomenon in 1912 in the first Germanedition of his book, The Theory of Money and Credit, though he indicateshe does not believe he used the particular expression Schumpeter attributesto him. In any case Mises carefully analyzed the phenomenon offorced saving and theoretically demonstrated that it is impossible topredetermine whether or not net growth in voluntary saving will followfrom an increase in the amount of money in circulation. On this topic seeOn the Manipulation of Money and Credit, pp. 120, 122 and 126–27. AlsoHuman Action, pp. 148–50. Mises first dealt with the subject in The Theoryof Money and Credit, p. 386. Though we will continue to attribute theterm “forced saving” to Mises, a very similar expression, “forced frugality,”was used by Jeremy Bentham in 1804 (see Hayek’s article, “ANote on the Development of the Doctrine of ‘Forced Saving,’” publishedas chapter 7 of Profits, Interest and Investment, pp. 183–97). AsRoger Garrison has aptly revealed, a certain disparity exists betweenMises’s concept of forced saving (what we refer to as “the broad sense”of the term) and Hayek’s concept of it (which we will call “the strictsense”), and thus “what Mises termed malinvestment is what Hayekcalled forced savings.” See Garrison, “Austrian Microeconomics: A DiagrammaticalExposition,” p. 196.