"Credit Expansion and the Trade Cycle", (em poucas palavras)

"Now what is credit expansion? Credit expansion is inflation also. The reason for making a distinction between credit expansion and simple inflation is because of the different effects that an additional quantity of money has upon entering the economic system by the two different routes. In simple inflation, the new money enters by spending on the part of government. The government spends additional sums created, for instance, for the purpose of carrying on a war. The effect of this spending is that prices of the things the government buys go up and consumers start to hoard. With credit expansion the additional quantities of money enter the economic system, not through government spending, but through loans of newly created credit to businessmen by the banks. So the prices of the things businesses buy go up. This brings about a "boom" in business. If this boom is not stopped in time, it develops into a great economic crisis. This is the trade cycle, the most interesting phenomenon of the capitalistic system.

The trade cycle is due to the fact that banks expand credit and this credit expansion brings about an expansion of business. But as the quantities of producers' goods, capital goods, are not increased, there is an over-expansion of some businesses, but not a general over-investment, as it is called by some finance brokers, throughout the whole economy. The significant characteristic of the boom is this over-expansion by the artificial lowering of the interest rate in order to create the credit expansion. This misleads businessmen into thinking that there is a greater amount of capital goods available than actually exists, and that certain projects are now possible which would have been impossible with a higher rate of interest. In fact the only thing that is newly available is an increased amount of credit created precisely for this purpose. This system, this "boom," goes on until finally it breaks down when it becomes apparent that the so-called "over-investment" is actually mal-investment or over-expansion in some areas of the economy." "Beware the Alchemists" by Ludwig von Mises