What is thus improperly regarded as profit, instead of as part of capital, is consumed by the entrepreneur or passed on either to the consumer in the form of price-reductions that would not otherwise have been made or to the labourer in the form of higher wages, and the government proceeds to tax it as income or profits. In any case, consumption of capital results from the fact that monetary depreciation falsifies capital accounting. Ludwig Von Mises
About This Quote

In an economy that has been successfully managed by a central bank, there is no way for a company to increase its profits only by increasing its consumption of capital. To do so, it would have to pay higher wages or lower prices to its consumers – both of which would require additional borrowing – and pass the cost on to the government, which would increase taxes on those profits. In order for a company to increase consumption of capital without increasing either consumption of goods or borrowing, it must be able to produce more goods and services with fewer workers. The process is called monetary depreciation.

This can result from price deflation, from inflation, from an increase in the quantity of money in circulation or from all three at once. The effect of monetary depreciation on consumption of capital is that it allows companies to produce more goods with fewer workers; the effect on consumption of goods and services is that it increases their effective price.

Source: The Theory Of Money And Credit

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