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

Additional Considerations on the Theory of the Business Cycle 449freed in the stages closest to consumption. The onlydifference between this situation and that of anincrease in voluntary saving which is immediatelyand directly invested in the productive structure orcapital markets is as follows: when saving manifestsitself as a rise in cash balances, there is a necessarydecline in the price of consumer goods and servicesand in the price of products from the intermediatestages, as well as an inevitable reduction in the nominalincome of the original means of production and inwages, all of which adapt to the increased purchasingpower of the monetary unit. Nevertheless unlike thefirst type of deflation mentioned, this type does notentail a painful process which contributes nothing.Instead here it is based on effective saving whichcauses a rise in society’s productivity. The lengtheningof the productive structure and the reallocation ofthe factors of production occur to the extent there is achange, as explained in chapter 5, in the relative pricesof the products from the intermediate stages and fromthe final stage, consumption. Such a change is independentof whether, in absolute, nominal terms, allprices must drop (to a varying extent) as a consequenceof the increased purchasing power of themonetary unit. 4848 Whenever an individual devotes a sum of money to savinginstead of spending it for consumption, the process of savingagrees perfectly with the process of capital accumulation andinvestment. It does not matter whether the individual saverdoes or does not increase his cash holding. The act of savingalways has its counterpart in a supply of goods produced andnot consumed, of goods available for further productionactivities. A man’s savings are always embodied in concretecapital goods. . . . The effect of our saver’s saving, i.e., the surplusof goods produced over goods consumed, does not disappearon account of his hoarding. The prices of capital goodsdo not rise to the height they would have attained in theabsence of such hoarding. But the fact that more capital goodsare available is not affected by the striving of a number ofpeople to increase their cash holdings. . . . The two