Monetary inflation and credit expansion raise money incomes, but lower real incomes. Wealth refers to real incomes, i.e., people’s standards of living or the consumer goods people have. Wealth increases through capital accumulation which raises productivity of inputs and results in the production of more and better consumer goods. To accelerate capital accumulation, people must lower their time preferences, releasing resources from producing consumer goods more directly and reallocating them into more indirect production of consumer goods. Monetary inflation and credit expansion shift resources into more indirect production processes even though people do not prefer them as they have not lowered their time preferences. The ensuing alteration is called a “boom” instead of economic growth because it involves a building up of the economy’s capital structure, seemingly aping the process of economic growth, which proves to be unsustainable. Because the build-up is not justified by lower time preferences, it must be torn down in the bust.
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