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

424 Money, Bank Credit, and Economic Cyclesitself to those entrepreneurs shrewd enough to arrive at thisrecession stage in the cycle with liquidity and to very selectivelyacquire those capital goods which have lost nearly all oftheir commercial value but which will again be consideredvery valuable once the economy recovers. Hence entrepreneurshipis essential to salvaging whatever can be saved and togetting the best possible use, depending upon the circumstances,from those capital goods produced in error, by selectingand keeping them for the more or less distant future inwhich the economy will have recovered and they can again beuseful to society.9THE POLICY OF GENERAL-PRICE-LEVEL STABILIZATIONAND ITS DESTABILIZING EFFECTS ON THE ECONOMYTheorists are particularly interested in the following question,which has carried practical significance in the past andappears to be acquiring it again: If the banking system bringsabout credit expansion unbacked by real saving, and as aresult the money supply increases, but just enough to maintainthe purchasing power of money (or the “general pricelevel”), then does the recession we are analyzing in this chapterfollow? This question applies to those economic periodsin which productivity jumps due to the introduction of newtechnologies and entrepreneurial innovations, and to theaccumulation of capital wisely invested by diligent, insightfulentrepreneurs. 24 As we have seen, when bank credit is not24 This appears to be the case of the American economic boom since thelate 1990s, when to a large extent the upsurge in productivity hid thenegative, distorting effects of great monetary, credit and stock marketexpansion. The parallel with the development of economic events in the1920s is striking, and quite possibly, the process will again be interruptedby a recession, which will again surprise all who merely concentratetheir analysis on the evolution of the “general price level” andother macroeconomic measures that conceal the underlying microeconomicsituation (disproportion in the real productive structure of theeconomy). At the time of this writing (the end of 1997), the first symptomsof a new recession have already manifested themselves, at least