A Quote by Ludwig von Mises
What is needed for a sound expansion of production is additional capital goods, not money or fiduciary media. The credit expansion is built on the sands of banknotes and deposits. It must collapse.
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There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
Unfortunately, once an economy is geared to expansion, the means rapidly turn into an end and "the going becomes the goal." Even more unfortunately, the industries that are favored by such expansion must, to maintain their output, be devoted to goods that are readily consumable either by their nature, or because they are so shoddily fabricated that they must soon be replaced. By fashion and built-in obsolescence the economies of machine production, instead of producing leisure and durable wealth, are duly cancelled out by the mandatory consumption on an even larger scale.
True, governments can reduce the rate of interest in the short run. They can issue additional paper money. They can open the way to credit expansion by the banks. They can thus create an artificial boom and the appearance of prosperity. But such a boom is bound to collapse soon or late and to bring about a depression.
To combat depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection -- a procedure which can only lead to a much more severe crisis as soon as the credit expansion comes to an end.
Government policies try to prevent the emergence of serious unemployment by credit expansion, i.e., inflation. The outcome was rising prices, renewed demands for higher wages and reiterated credit expansion; in short, protracted inflation.
Confidence, capital, and credit fuel entrepreneurship and economic expansion.
Every increase of protective duties is necessarily followed, in the present condition of our country, by an expansion of the currency, which must continue to increase till the increased price of production, caused by the expansion, shall be equal to the duty imposed, when a new tariff will be required.
Credit expansion is the governments' foremost tool in their struggle against the market economy. In their hands it is the magic wand designed to conjure away the scarcity of capital goods, to lower the rate of interest or to abolish it altogether, to finance lavish government spending, to expropriate the capitalists, to contrive everlasting booms, and to make everybody prosperous.
Since the eighteenth century the immense expansion of the worlds wealth has come about as a result of a correspondingly immense expansion of credit, which in turn has demanded increasingly stupendous suspensions of disbelief.
The only source of the generation of additional capital goods is saving. If all the goods produced are consumed, no new capital comes into being.
One day, because they realize for some reason or other that they must stop credit expansion, the banks do stop creating new credit to lend. Then the firms that have expanded cannot get credit to pay for the factors of production necessary for the completion of the investment projects which they have already committed themselves. Because they cannot pay their bills, they sell off their inventories cheap. Then comes the panic, the breakdown. And the depression starts.
The expansion of the market creates a need for enhanced and more regular supply, and this in turn impels commercial capital to acquire control of production as well.
Sometimes I wonder how much of these debates have to do with the desire, the legitimate desire, for that history to be recognized. Because there is a psychic power to the recognition that is not satisfied with a universal program, it's not satisfied by the Affordable Care Act, or an expansion of Pell grants, or an expansion of the earned-income tax credit.
Our contemporary brand of socialism has one fatal flaw. It's too expensive. When you try to shower benefits on so many recipients, you eventually must resort to subterfuge. Foremost among those tricks is money and credit expansion. Inevitably, you debase your currency.
Banks hold deposits and savings entrusted to them by individuals, by businesses, by governments and by central banks. They put that money to work, helping people to buy homes, for example, or lending to businesses to invest in expansion.
Globalization has considerably accelerated in recent years following the dizzying expansion of communications and transport and the equally stupefying transnational mergers of capital. We must not confuse globalization with "internationalism" though. We know that the human condition is universal, that we share similar passions, fears, needs and dreams, but this has nothing to do with the "rubbing out" of national borders as a result of unrestricted capital movements. One thing is the free movement of peoples, the other of money.
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