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.If A buys a new security issue, then the funds are directly invested; if he buys an old share, then (1) the increased price of stock will encourage the firm to float further stock issues, and (2) the funds will then be transferred to the seller B, who in turn will consume or directly invest the funds.If the money is directly invested by B, then once again the stock market has channelled savings into investment.If B consumes the money, then his consumption or dissaving just offsets A’s saving, and no aggregate net saving has occurred.Much concern was expressed in the 1920s over brokers’ loans, and the increased quantity of loans to brokers was taken as proof of credit absorption in the stock market.But a broker only needs a loan when his client calls on him for cash after selling his stock; otherwise, the broker will keep an open book account with no need for cash.But when the client needs cash he sells his stock and gets out of the market.Hence, the higher the volume of brokers’ loans from banks, the greater the degree that funds are leaving the stock market rather than entering it.In the 1920s, the high volume of Some Alternative Explanations of Depression: A Critique 79brokers’ loans indicated the great degree to which industry was using the stock market as a channel to acquire saved funds for investment.28The often marked fluctuations of the stock market in a boom and depression should not be surprising.We have seen the Austrian analysis demonstrate that greater fluctuations will occur in the capital goods industries.Stocks, however, are units of title to masses of capital goods.Just as capital goods’ prices tend to rise in a boom, so will the prices of titles of ownership to masses of capital.29 The fall in the interest rate due to credit expansion raises the capital value of stocks, and this increase is reinforced both by the actual and the prospective rise in business earnings.The discounting of higher prospective earnings in the boom will naturally tend to raise stock prices further than most other prices.The stock market, therefore, is not really an independent element, separate from or actually disturbing, the industrial system.On the contrary, the stock market tends to reflect the “real” developments in the business world.Those stock market traders who protested during the late 1920s that their boom simply reflected their “investment in America” did not deserve the bitter comments of later critics; their error was the universal one of believing that the boom of the 1920s was natural and perpetual, and not an artificially-induced prelude to disaster.This mistake was hardly unique to the stock market.Another favorite whipping-boy during recent booms has been installment credit to consumers.It has been charged that installment loans to consumers are somehow uniquely inflationary and unsound.Yet, the reverse is true.Installment credit is no more inflationary than any other loan, and it does far less harm than business loans (including the supposedly “sound” ones) because it 28On all this, see Machlup, The Stock Market, Credit, and Capital Formation.An individual broker might borrow in order to pay another broker, but in the aggregate, inter-broker transactions cancel out and total brokers’ loans reflect only broker-customer relations.29Real estate values will often behave similarly, real estate conveying units of title of capital in land.80America’s Great Depressiondoes not lead to the boom–bust cycle.The Mises analysis of the business cycle traces causation back to inflationary expansion of credit to business on the loan market.It is the expansion of credit to business that overstimulates investment in the higher orders, misleads business about the amount of savings available, etc.But loans to consumers qua consumers have no ill effects.Since they stimulate consumption rather than business spending, they do not set a boom–bust cycle into motion.There is less to worry about in such loans, strangely enough, than in any other.OVEROPTIMISM AND OVERPESSIMISMAnother popular theory attributes business cycles to alternating psychological waves of “overoptimism” and “overpessimism.” This view neglects the fact that the market is geared to reward correct forecasting and penalize poor forecasting.Entrepreneurs do not have to rely on their own psychology; they can always refer their actions to the objective tests of profit and loss.Profits indicate that their decisions have borne out well; losses indicate that they have made grave mistakes.These objective market tests check any psychological errors that may be made.Furthermore, the successful entrepreneurs on the market will be precisely those, over the years, who are best equipped to make correct forecasts and use good judgment in analyzing market conditions.Under these conditions, it is absurd to suppose that the entire mass of entrepreneurs will make such errors, unless objective facts of the market are distorted over a considerable period of time.Such distortion will hobble the objective “signals” of the market and mislead the great bulk of entrepreneurs.This is the distortion explained by Mises’s theory of the cycle.The prevailing optimism is not the cause of the boom; it is the reflection of events that seem to offer boundless prosperity.There is, furthermore, no reason for general overoptimism to shift suddenly to overpessimism; in fact, as Schumpeter has pointed out (and this was certainly true after 1929) businessmen usually persist in dogged and unwarranted optimism for quite a while after a depression breaks out.30 Business psychology is, therefore, derivative 30See Schumpeter, Business Cycles, vol.1, chap.4.Some Alternative Explanations of Depression: A Critique 81from, rather than causal to, the objective business situation.Economic expectations are therefore self- correcting, not self-aggravating [ Pobierz całość w formacie PDF ]