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

416 Money, Bank Credit, and Economic Cyclesexistence of “idle capacity” in many production processes(but especially in those furthest from consumption, such ashigh technology, construction, and capital goods industries ingeneral) in no way constitutes proof of oversaving and insufficientconsumption. Quite the opposite is true: it is a symptomof the fact that we cannot completely use fixed capital producedin error, because the immediate demand for consumergoods and services is so urgent that we cannot allow ourselvesthe luxury of producing the complementary capital goods northe working capital necessary to take advantage of such idlecapacity. In short the crisis is provoked by a relative excess ofconsumption, i.e., a relative shortage of saving, which doesnot permit the completion of the processes initiated, nor theproduction of the complementary capital goods or workingcapital necessary to maintain the ongoing investmentprocesses and to employ the capital goods which, for whateverreason, entrepreneurs were able to finish during theexpansion process. 17excess of capital and that consumption is insufficient: on thecontrary, it is a symptom that we are unable to use the fixedplant to the full extent because the current demand for consumers’goods is too urgent to permit us to invest current productiveservices in the long processes for which (in consequenceof “misdirections of capital”) the necessary durableequipment is available. (Hayek, Prices and Production, pp.95–96)17 After the boom period is over, what is to be done with themalinvestments? The answer depends on their profitabilityfor further use, i.e., on the degree of error that was committed.Some malinvestments will have to be abandoned, sincetheir earnings from consumer demand will not even cover thecurrent costs of their operation. Others, though monumentsof failure, will be able to yield a profit over current costs,although it will not pay to replace them as they wear out.Temporarily working them fulfills the economic principle ofalways making the best of even a bad bargain. Because of themalinvestments, however, the boom always leads to generalimpoverishment, i.e., reduces the standard of living belowwhat it would have been in the absence of the boom. For thecredit expansion has caused the squandering of scarce