[Could the excess long-term credit have been sufficient to cause the boom?
Another potentially important critique concerns the sufficiency of the estimated excess credit created in 1927 to cause the presumably unsustainable investment boom. It may well be argued that the amount of formation over 1928 ($2,82 bln.).
The first response is that we are not implying that the whole increase in net capital formation in 1929 over 1928 constituted ABCT-predicted excessively long projects.
More importantly, nothing in the version of ABCT that we are applying in this paper requires money taken on credit to be the only source of investment into the excessively long projects. Before the round of credit expansion that makes them illusorily profitable, the originators of such projects may possess part of the funds required for their implementation (from the non-distributed profits, for instance) but not the whole amounts, thus requiring borrowing.
Finally, one of the biggest potential problems with our case for copper being a contested good during the Roaring Twenties is that projects involving construction of new plants or expansion of older ones would involve the bulk of the copper in their later stages when electrical equipment is installed. Thus, the excessively long projects taken separately could not have misallocated copper in the way we described in section [ ] because they could not involve significant utilization of copper in their early stages.
However, the problem may be solved if we take into account that the bulk of borrowing in the late 1920s was not in the form of financing tied to particular investment projects but the one of bonds and preferred stock with fixed dividend. The funds obtained in this way can be used for many projects which do not have to be simultaneous. If such projects constitute a program of expansion than miscalculation can happen at the level of the whole such program rather than all the individual investment projects constituting it. The essence of the potential problem does not change even though some of the projects which are part of the expansion program may start contributing to the production of finished consumer goods before the miscalculation becomes apparent.
Therefore, the pattern of copper shipments and average price in Fig. [ ] may reflect expansion programs having been undertaken which involved some projects which were much closer to the electrical equipment installation stage than the others at the start of the implementation of expansion programs.]