Mises is arguing section six of this chapter that in a boom period, that businessmen have undertaken more projects than resources exist to complete. He uses here the well known example of a master-builder with a lack of building materials available. Two paragraphs later he asserts "However, raw materials, primary commodities, … are not lacking … at the turning point…these goods are offered in such quantities as to make their prices drop. "
Can someone please explain this apparent contradiction?
Agreed, it’s not very clear, but what I think Mises is refering to is the fact that during the investment boom there is an increase in demand for capital-goods, such as raw resources. Producers are inclined to shift production towards raw resources, foodstuff, et cetera. When boom turns to bust, there is a sudden drop in demand for these products, and an increase in supply due to their production during the years of the boom, and so prices drop. This is why during recessions the worst hit industry is the production sector.
Thanks. I believe the difference I wasn’t seeing was that there are two ways the boom can end: (1) the end of credit expansion, where the inadequacy of capitial is not yet manifest, or (2) the crack-up boom. In the latter case he was pointing to an the first means of ending, not the crack-up boom.
It is quite confusing, but the bust can occur for two reasons: A) Inflation is not increasing at a pace fast enough for the current structure of production, or B) The ratio between consumption and savings increases too much in favor of the former. When this occurs, there is increased demand for final current goods relative (or absolutely) to future producer’s goods. Thus, producer’s goods will have their prices fall dramatically, and a collapse in investment occurs. The problem with a constant injection of credits (fiduciary media) to producer’s is that they continuously lengthen the structure of production, employing more “roundabout methods.” If this continues, the producers will hit ceilings in capital markets, and a collapse, again, will occur. Mises may be talking about two different scenarios, both of which would cause an investment collapse, and therefore a recession. I’m not entirely sure though.