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

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Central and Free Banking Theory 691Chart VIII-1 the increase in the demand for fiduciary mediashifts the hypotenuse of the triangle toward the left. Thismovement reflects a drop in the monetary demand for consumerand investment goods, since the proportion of one tothe other (or time preference) has not varied. In this chart, surface“A” represents economic agents’ new demand for (or“hoarding” of) fiduciary media (see Chart VIII-1).The fundamental conclusion of the theory of monetaryequilibrium in a fractional-reserve free-banking system is thatbanks would respond to this rise in the demand for fiduciarymedia by expanding their issuance by a volume equal to thatof the new demand (represented by surface “A”), and the productivestructure, as shown in Chart VIII-2, would remainintact (see Chart VIII-2).Nonetheless we must remember that banks do not directlytransfer the new fiduciary media they create to their final users(the economic agents whose demand for fiduciary media hasincreased by the volume represented by surface “A” in ChartVIII-1). Instead, the deposits are lent to entrepreneurs, whospend it on investment goods and thereby initially create a morecapital-intensive structure, which we represent in Chart VIII-3.Nevertheless this more capital-intensive productive structurecannot be maintained in the long term. For once the newfiduciary media reach their final recipients (who in the verybeginning accumulated the bank money they needed, as surface“A” in Chart VIII-1 indicates), they will spend them,according to our postulate of unchanging time preference, onconsumer and investment goods in a proportion equal to thatshown in Charts VIII-1 and VIII-2. If we superimpose ChartVIII-3 on Chart VIII-2 (see Chart VIII-4), the distortion of theproductive structure becomes clear. Shaded area “B” representsthe investment projects entrepreneurs have launched in error,since all of the fiduciary media banks have issued to adjust tothe increase in the demand for them have been channeled intoinvestment loans. 135 Shaded area “C” (with a surface identical135 Selgin and White implicitly acknowledge this point when they assert:Benefits accrue . . . to bank borrowers who enjoy a more amplesupply of intermediated credit, and to everyone who works
692 Money, Bank Credit, and Economic Cyclesto “B”) reflects the portion of the new fiduciary media whichthe final holders spend on the goods closest to consumption.The productive structure regains the proportions shown inChart VIII-1, but only following the inevitable, painful readjustmentswhich the Austrian theory of economic cycleswith the economy’s consequently larger stock of capital equipment.(Selgin and White, “In Defense of Fiduciary Media—or,We are Not Devo(lutionists), We are Misesians!” p. 94)
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MONEY,BANK CREDIT,ANDECONOMIC CYCLE
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CONTENTSPREFACE TO THE THIRD ENGLIS
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xiiMoney, Bank Credit, and Economic
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xivMoney, Bank Credit, and Economic
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xviMoney, Bank Credit, and Economic
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xviiiMoney, Bank Credit, and Econom
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PREFACE TO THESECOND ENGLISH EDITIO
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Preface to the Second English Editi
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PREFACE TOTHE THIRDSPANISH EDITIONI
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Preface to the Third Spanish Editio
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xliiMoney, Bank Credit, and Economi
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INTRODUCTIONThe economic analysis o
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Introductionxlviiand foreign exchan
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IntroductionxlixThis book comprises
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Introductionrecurrent phenomenon. I
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Introductionand Professors Hans-Her
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2 Money, Bank Credit, and Economic
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4THE CREDITEXPANSION PROCESSThis ch
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The Credit Expansion Process 169dif
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6ADDITIONALCONSIDERATIONSON THE THE
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7A CRITIQUE OFMONETARIST ANDKEYNESI
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A Critique of Monetarist and Keynes
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8CENTRAL AND FREEBANKING THEORYThis
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Central and Free Banking Theory 603
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A Proposal for Banking Reform:The T
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BIBLIOGRAPHYAbrams, M.A., Money in
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Bibliography 815Bajo Fernández, M.
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Bibliography 817Borch, K.H., Econom
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Bibliography 819Coronel de Palma, L
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Bibliography 821N. Durlauf and Lawr
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Bibliography 823Galiani, F., Della
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Bibliography 825Graham, F.D., “Pa
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Bibliography 827——, Prices and
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Bibliography 829translation by N. K
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Bibliography 831——, “Keynes
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Bibliography 833Russian edition by
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Bibliography 835Keeler, J., “Empi
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Bibliography 837——, “On Crisi
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Bibliography 839——, “Professo
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Bibliography 841Miller, H.E., Banki
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Bibliography 843Neira, Alonzo, M.A.
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Bibliography 845Raguet, C., “Repo
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Bibliography 847——, “The Myth
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Bibliography 849——, “Banking
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Bibliography 851M.C. Marcuzzo (Chel
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Bibliography 853——, “A Critiq
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Bibliography 855Walker, A., The Sci
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INDEX OF SUBJECTSAccelerator princi
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Index of Subjects 859Banking reform
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Index of Subjects 861objection to t
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Index of Subjects 863Goal, concept
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Index of Subjects 865See also Fract
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Index of Subjects 867Plan, definiti
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Index of Subjects 869Tragedy of the
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