The reserve fund is the amount of capital that has accumulated over the years.  Using the reserve fund can give the appearance of economic health.  The fund is being used up to make up the difference.  It will be exhausted without more savings than consumption.  Durable goods don’t wear out immediately.  Various measures to intervene in the market end up using the fund, which may give the appearance of a healthy economy.

The masses enjoy the feeling of getting something for nothing.  However, this is just a feeling.  In reality, the reserve fund is being used up.  This is the capital accumulated by generations past.  We are squandering the wealth they left to us.  What is referred to as public expenditure comes at a cost.  It might be called other names like investment.  This is ridiculous.  It’s just consumption.  The reserve fund can never grow under these conditions.

Incomes have grown over the years.  This isn’t due to high taxes, regulations, and public expenditures.  These all cause the reserve fund to shrink.  High incomes are the result of capital being accumulated.  Incomes that are high now will shrink once the fund becomes exhausted.  Eliminating cash and reducing the interest rate more won’t add to it.  That would cause many other problems, but its impossible that the fund would increase.

Capital can’t be spent more than once.  Dollars are titles to goods.  Two people can’t have titles to the same good.  Maybe one is a title to a good and another is a bit of the reserve fund.  Fractional reserve banking is always in conflict with progress.  The fund isn’t inexhaustible as many like to believe—if they’re even aware of it.  The fund can’t be drained forever.  It will become exhausted eventually.

The reserve fund doesn’t have to be exhausted.  Savings just must exceed consumption.  For that to happen, the operation of the market must not be harmed.  Expropriating funds from the public doesn’t help—actually harms it severely.  Interference with the market leaves no room for economic activity.  It will be chaos when the fund is exhausted.  Something for nothing will end.  Sadly, it might take complete collapse before the masses realize this.

Reference

Ludwig von Mises; Human Action