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

420 Money, Bank Credit, and Economic Cyclesover national income, relegate to third place, after governmentexpenditure, the production of final capital goods completedthroughout the period (the only capital goods reflected in theGNP by definition) and absurdly exclude approximately halfof all of society’s entrepreneurial, labor and productive effort,that devoted to the manufacture of intermediate products.The gross domestic output (GDO) of a financial yearwould be a much more precise indicator of the influencebusiness cycles exert on the market and society. This measurewould be calculated as described in tables from chapter 5, i.e.,in truly gross terms, including all monetary spending, notmerely that related to final goods and services, but all intermediateproducts manufactured in all stages in the productionprocess. A measure of this sort would reveal the true effectsexerted on the productive structure by credit expansion andby the economic recession it inevitably causes. 21Production, p. 306. According to a study carried out by the U.S. Departmentof Commerce, entitled, “The Interindustry Structure of the UnitedStates,” and published in 1986, 43.8 percent of the American grossdomestic output (3,297,977 million dollars) comprised intermediateproducts which were not reflected by GDP figures (merely equal to 56.2percent of the gross domestic output, i.e., 4,235,116 million dollars). SeeArthur Middleton Hughes, “The Recession of 1990: An Austrian Explanation,”Review of Austrian Economics 10, no. 1 (1997): 108, note 4. Comparethis data with that provided for 1982 in footnote 38 of chapter 5.21 Hayek, on the last pages of his 1942 article on the Ricardo Effect (“TheRicardo Effect,” pp. 251–54), examines the ways in which traditionalconsumer price index statistics tend to obscure or prevent the empiricaldescription of the evolution of the cycle, in general, and of the operationof the Ricardo Effect during the cycle, in particular. In fact the statisticsin use do not reflect price changes in the products manufactured in thedifferent stages of the production process, nor the relationship whichexists in each stage between the price paid for the original factors of productioninvolved and the price of the products made. Fortunately recentstatistical studies have in all cases confirmed the Austrian analysis,revealing how the price of goods from the stages furthest from consumptionis much more volatile than the price of consumer goods. MarkSkousen, in his (already cited) article presented before the general meetingof the Mont Pèlerin Society of September 25–30, 1994 in Cannes,showed that in the United States over the preceding fifteen years the