Savings, in Influencing the Size of the Subsistence Fund, Determine the Way Production Is Organised in the Economy

In Theorie des Geldes und der Umlaufsmittel, Mises explains the influence of circulation credit on the economy in terms of the so-called subsistence fund. This fund—which consists of saved-up consumers’ goods—looms large in his then exposition of the production process. To explain the subsistence fund theory in a few words: Consumers’ goods are a necessary pre-condition of every production process. Without something to eat, something to drink, clothes, and so forth, nobody will participate in production. The owners of the originary factors of production, most notably workers, need to be furnished with consumers’ goods during the production process. The subsistence fund is especially important when it comes to determining the possible length of the production processes. It is this point which Mises stresses in his 1912 book . . .

He further states that the “national subsistence fund is necessarily altered
by the increase of savings.” Thus savings, in influencing the size of the subsistence fund, determine the way production is organised in the economy:

A lengthening of the period of production is only practicable . . . when either the means of subsistence have increased sufficiently to support the laborers and entrepreneurs during the longer period or when the wants of producers have decreased sufficiently to enable them to make the same means of subsistence do for the longer period.

--Eduard Braun, "The Subsistence Fund in Ludwig von Mises's Explanation of the Business Cycle," in Theory of Money and Fiduciary Media: Essays in Celebration of the Centennial, ed. Jörg Guido Hülsmann (Auburn, AL: Ludwig von Mises Institute, 2012), 196.