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

418 Money, Bank Credit, and Economic Cyclesserious, large-scale entrepreneurial error. When the crisis hitsand the errors come to light, new massive transfers of originalfactors of production and labor from the stages furthest fromconsumption to those closest to it will be necessary and willrequire an especially flexible labor market, one free of anyinstitutional or union restrictions or coercion. Therefore thosesocieties with a more rigid labor market will experiencehigher and more sustained unemployment upon theinevitable exposure of the entrepreneurial errors provoked inthe productive structure by credit expansion. 18Thus the only way to fight unemployment is, in the shortterm, to make the labor market more flexible in every sense,and in the medium and long term, to prevent the initiation ofany process of artificial expansion which arises from the bankingsystem’s granting of loans in the absence of a priorincrease in voluntary saving.7NATIONAL INCOME ACCOUNTING IS INADEQUATE TOREFLECT THE DIFFERENT STAGES IN THE BUSINESS CYCLEThe statistics of gross national product (GNP), and in general,the definitions and methodology of national incomeaccounting do not provide a reliable indication of economicfluctuations. Indeed gross national product figures systematicallyconceal both the artificial expansionary effects of banks’creation of loans and the tightening effects the crisis exerts onthe stages furthest from consumption. 19 This phenomenon can18 We are referring to involuntary (or institutional) unemployment, notto the so-called “natural rate of unemployment” (or voluntary and“catallactic” unemployment) which has grown so spectacularly in moderntimes as a result of generous unemployment compensation andother measures which act as a strong disincentive to the desire of workersto return to work.19 See pp. 305–12 and 336 note 55. As Mark Skousen has pointed out:Gross Domestic Product systematically underestimates theexpansionary phase as well as the contraction phase of the