The market can’t operate without calculation.  It will be difficult to view capital consumption when the market is distorted.  Capital consumption occurs when consumption exceeds income.  It’s called saving if consumption is less than income.  Calculation is necessary to determine if there is consumption or saving.  Chaos is brought about if consumption happens market wide.  Capital consumption is impossible to view by a third party.

The business owners can reflect on their business, but no third party can.  A business will shut its doors if consumption goes on too long.  This can also happen economy wide.  Distortions can cause capital consumption on a large scale.  Crusoe can see if his net is wearing out, that doesn’t mean Friday can.  He doesn’t need calculation to determine this.   Calculation is necessary for growth in a modern economy.

Capital consumption must ensue if the capital employed doesn’t yield an income greater than the expenses.  Capital goods don’t wear out overnight.  You can see the lunch meat shrinking in size, but not the lunch meat factory.  Just because you can get lunch meat doesn’t mean that all is well with the factory.  The lunch meat may not be available one day.  You can switch to another brand, but they won’t have any either.

Massive inflation and nonexistent interest rates can cause large scale capital consumption.  It’s not just one lunch meat factory.  Nearly all have been consuming capital throughout the economy.  There will be few goods available.  The capital goods and savings available are the reserve fund.  It’s chaos once the reserve fund is extinguished.  Consumption can give a euphoric feeling, but a monster is lurking. 

Taxes, inflation, nonexistent interest rates, all lead to consuming capital.  We could very well be in a state of capital consumption right now.  The reserve fund will be depleted if conditions aren’t altered.  “As long as the walls of the factory building stand, and the trains continue to run, it is supposed that all is well with the world.”  The world is sick.  Many can’t see it.  We are impoverishing ourselves, and setting up a lower standard of living.

References

Ludwig von Mises; Human Action

Murray Rothbard; Man, Economy, and State