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

Additional Considerations on the Theory of the Business Cycle 413correctly indicates). 12 Instead, regardless of the final amountof saving and investment in society (always identical ex post),all that is achieved by an attempt to force a level of investmentwhich exceeds that of saving is the general malinvestment ofthe country’s saved resources and an economic crisis alwaysdestined to make it poorer. 13 5THE SQUANDERING OF CAPITAL, IDLE CAPACITY,AND MALINVESTMENT OF PRODUCTIVE RESOURCESThe chief effect credit expansion exerts on the productivestructure is ultimately that it discoordinates the behavior of thedifferent economic agents. Indeed entrepreneurs rush tolengthen and widen the productive stages and make themmore capital-intensive, while the remaining economic agentsare unwilling to cooperate by sacrificing their consumption andraising their overall voluntary saving. This maladjustment ordiscoordination, which stems from a systematic attack on theprocess of social interaction (the privilege governments grantbanks, allowing them to use a fractional reserve on demanddeposits), invariably triggers a crisis process that eventuallycorrects the entrepreneurial mistakes committed. Neverthelessthe process takes time, and inevitably, by its end, seriouserrors will have been made that will have become irreversible.The errors consist of launching and attempting to completea series of investment projects which entail a lengtheningand widening of the capital goods structure, projectswhich nonetheless cannot come to fruition, due to a lack ofreal saved resources. Moreover once resources and original12 See Hayek, “A Note on the Development of the Doctrine of ‘ForcedSaving,’” p. 197. See also the comments on Cantillon and Hume’s contributionsin chapter 8, pp. 615–20.13 Fritz Machlup has compiled up to 34 different concepts of “forced saving”in his article, “Forced or Induced Saving: An Exploration into itsSynonyms and Homonyms,” The Review of Economics and Statistics 25,no. 1 (February 1943); reprinted in Fritz Machlup, Economic Semantics(London: Transaction Publishers, 1991), pp. 213–40.