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

458 Money, Bank Credit, and Economic Cyclesto finance all sorts of speculative operations, takeover bids andfinancial and trade wars in which the culture of short-sightedspeculation prevails. In other words the misconceived ideathat it is possible and desirable to accumulate astronomicalprofits with astonishing ease and swiftness spreads. This discouragesthe traditional entrepreneurial spirit and a job welldone, both of which are based on prudent business managementwith an attitude of constancy and commitment to theachievement of long-term goals. This is what we have in mindwhen we refer to the widespread demoralization caused byartificial credit expansion. This discouragement is especiallydevastating to society’s youngest, most dynamic generations. 56The problem is made worse if, as theorists who have analyzedthe cycle from a political standpoint have shown, 57politicians make their decisions entirely on a short-term basisand with the aim of attaining immediate support to guaranteethem victory in the next election, and therefore they never hesitateto advocate and initiate those policies of monetaryexpansion which will most help them achieve electoral successin the short run. Furthermore as any deviation from artificialexpansion and the excessive optimism it produces isviewed unfavorably, immediately attacked by the media andused as a political weapon to be hurled by the opposition,unions and business organizations, no one dares to condemn the56 The effect of credit expansion is more harmful the more accustomedeconomic agents are to an austere economy, the sustained growth ofwhich depends solely on voluntary saving. It is under these circumstancesthat credit expansion is most damaging. Nevertheless undercurrent conditions, in which artificial booms alternate with recessions,economic agents begin to learn from experience and the expansionaryeffects of the granting of loans are increasingly reduced or are achievedsolely at the cost of injecting mounting volumes of credit at an escalatingrate.57 William D. Nordhaus, “The Political Business Cycle,” Review of EconomicStudies 42, no. 130 (April 1975): 169–90. See also Edward R. Tufte,Political Control of the Economy (Princeton, N.J.: Princeton UniversityPress, 1978); and C. Duncan MacRae, “A Political Model of the BusinessCycle,” published in Journal of Political Economy 85 (1977): 239–63. Seealso footnote 56 of chapter 9.