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

506 Money, Bank Credit, and Economic CyclesTABLE VI-1A SUMMARY OF STAGES(1) (2)An Increase inCredit ExpansionVoluntary Saving(No increase in saving)S1 The rate of consumptionslows. Consumer goods dropin price.S2S2Accounting profits decline inthe consumer sector.Real wages tend to climb(unchanged nominal amount;lower-priced consumergoods).S2 The Ricardo Effect: workersare replaced by capital equipment.S2S2S3S3The interest rate decreases(due to the rise in saving). Thestock market shows moderategrowth.Capital goods rise in price(due to the increase in thedemand for them, the RicardoEffect, and the reduction in theinterest rate).The production of capitalgoods mounts.Workers are laid off in the consumersector and hired in capital-goodsindustries.S4 The productive structure ispermanently lengthened.S5The production of consumergoods and services soars,while their price falls(increased supply anddecreased monetary demand).Wages and national incomerise permanently in real terms.Crisis Boom ExpansionS1Consumption does not decline.S1 Banks grant new loans on amassive scale and the interestrate drops.S2 Capital goods rise in price.S2 Prices climb on the stockmarket.S2 The productive structure isartificially lengthened.S2 Large accounting profitsappear in the capital-goodssector.S3 The capital-goods sectordemands more workers.S3Wages rise.S3 The expansionary and stockmarket boom becomes widespread.Rampant speculation.S4 Monetary demand for consumergoods begins to grow(increased earned and entrepreneurialincome is devotedto consumption).S4S4At some point the rate ofgrowth in credit expansionceases to mount: the interestrate climbs. The stock marketcrashes.Accounting profits appear inthe consumer sector (demandincreases).S4 The prices of consumer goodsbegin to grow faster thanwages, in relative terms.(Continued on the next page)