Clearly, bank credit expansion cannot increase capital investment by one iota. Investment can still come only from savings.
... says Rothbard in
Man, Economy and State (
chapter 12). Also, and furthermore,
The distortion caused by credit expansion deceives businessmen into believing that more savings are available and causes them to malinvest—to invest in projects that will turn out to be unprofitable when consumers have a chance to reassert their true preferences. This reassertion takes place fairly quickly—as soon as owners of factors receive their increased incomes and spend them.
This important truth is deliberately ignored by today's "mainstream" economists, who wish to maintain their great influence in the political sphere. But I hope time is now ripe for a new way of thinking. The endless manipulation of politicians and central bankers with our medium of exchange, money, must end. Keynes, Krugman and other preachers of modern economic "science" must be thrown into the dustbin of economic history.
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