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

Additional Considerations on the Theory of the Business Cycle 415may also be left half-completed, as their promoters abandonthem upon realizing they cannot continue to obtain the newfinancial resources necessary to complete them, or thoughthey may be able to continue to secure loans, they recognizethat the investment processes lack economic viability. In shortthe widespread malinvestment expresses itself in the followingways: many capital goods remain unused, many investmentprocesses cannot be completed, and capital goods producedare used in a manner not originally foreseen. A largeportion of society’s scarce resources has been squandered, andas a result, society becomes poorer in general and the standardof living drops, in relative terms.Many economists have misunderstood the fact that a significantnumber of the errors committed manifest themselvesas completed capital goods which, nonetheless, cannot beused, due to the absence of the complementary capital goodsor working capital necessary. Indeed many see this phenomenonof “idle capacity” as clear proof of a necessity to boostoverall consumption with the purpose of putting into operationan idle capacity which has been developed but is notyet used. They do not realize that, as Hayek indicates, 16 the16 In the words of F.A. Hayek himself:The impression that the already existing capital structurewould enable us to increase production almost indefinitely isa deception. Whatever engineers may tell us about the supposedimmense unused capacity of the existing productivemachinery, there is in fact no possibility of increasing productionto such an extent. These engineers and also those economistswho believe that we have more capital than we need,are deceived by the fact that many of the existing plant andmachinery are adapted to a much greater output than is actuallyproduced. What they overlook is that durable means ofproduction do not represent all the capital that is needed foran increase of output and that in order that the existingdurable plants could be used to their full capacity it would benecessary to invest a great amount of other means of productionin lengthy processes which would bear fruit only in acomparatively distant future. The existence of unused capacityis, therefore, by no means a proof that there exists an