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

548 Money, Bank Credit, and Economic CyclesSecond, Keynes, realizing the great weakness of his“accounting argument,” puts forward an even more preposterousone. He maintains that new loan funds the bank createsand grants its customers are not used to finance new investmentabove the level of voluntary saving, since the newly-createdmoney borrowers receive could be used to purchase consumergoods instead. To the extent the new money is not used to purchaseconsumer goods and services, Keynes reasons, it isimplicitly “saved” and thus when invested, its amount correspondsexactly to that of “genuine, prior” savings. This is howKeynes himself expresses this argument:[T]he savings which result from this decision are just as genuineas any other savings. No one can be compelled to ownthe additional money corresponding to the new bank-credit,unless he deliberately prefers to hold more money ratherthan some other form of wealth. 59Keynes clearly relies on the ex post facto equivalencebetween saving and investment to ward off the harmfuleffects credit expansion exerts on investment and the productivestructure. 60 Nevertheless all saving requires disciplineand the sacrifice of the prior consumption of goods and services,not merely the renunciation of the potential consumptionafforded by new monetary units created ex nihilo. Otherwise59 Keynes, The General Theory, p. 83.60 Benjamin Anderson, in reference to Keynes’s theory that credit expansiondoes not lead to a disproportion between investment and voluntarysavings, since new money invested could be spent on consumer goodsand services instead and therefore must first be “saved,” concludes:One must here protest against the dangerous identification ofbank expansion with savings, which is part of the Keynesiandoctrine. . . . This doctrine is particularly dangerous today,when we find our vast increase in money and bank depositsgrowing out of war finance described as “savings,” justbecause somebody happens to hold them at a given momentof time. On this doctrine, the greater the inflation, the greaterthe savings! (Anderson, Economics and the Public Welfare, pp.391–92)