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Mises on Money & Inflation - Leonard P. Liggio, Literature of Liberty, Autumn 1982, vol. 5, No. 3 [1982]

Edition used:

Literature of Liberty: A Review of Contemporary Liberal Thought was published first by the Cato Institute (1978-1979) and later by the Institute for Humane Studies (1980-1982) under the editorial direction of Leonard P. Liggio.

Part of: Literature of Liberty: A Review of Contemporary Liberal Thought, 20 vols. 19781-982

About Liberty Fund:

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


Mises on Money & Inflation

Charles Hull Wolfe

“Ludwig von Mises: His Insight and Foresight on Money.” Review essay of On the Manipulation of Money and Credit by Ludwig von Mises. Dobbs-Ferry, N.Y. Free Market Books, 1978. The Intercollegiate Review 16 (Fall 1980): 53–56.

Ludwig von Mises (1881–1973), a leading spokesman of the “Austrian School” of economics, was well known for his keen economic insight and consistent logic. “As his fellow Austrian, Nobel prize economist F. A. Hayek, has written, even those who cannot follow his line of reasoning precisely usually find that later events prove him right. Thus, his analysis of money, inflation, and credit expansion becomes increasingly important the more people expect inflation to continue.”

“Mises' On the Manipulation of Money and Credit contains new translations of several studies, not previously available in English, which Mises wrote between the two World Wars when he was an economic adviser to the Austrian government.” The first of these, Stabilization of the Monetary Unit—from The Viewpoint of Theory (1923) predicts the runaway inflation that Germany was to experience later that year. The second study, Monetary Stabilization and Cyclical Policy (1928) analyzes schemes that resemble current plans to stabilize the purchasing power of money by indexation as a means to avert a depression. The third study, The Causes of the Economic Crisis (1931), “explodes the ‘full employment’ recommendation Keynes was to make five years later in his General Theory (1936).”

In our “age of inflation,” Mises' analysis of the evils and consequences of governmental increases in the quantity of fiat money is all too relevant. Inflation produces higher money prices and wages and motivates people into panicky buying of homes, cars, and major appliances today on speculation or out of fear that prices will be even higher tomorrow. In addition to shifts in prices and purchasing power, monetary expansion disturbs economic relationships. Inflation deceives businessmen by distorting economic calculations. It seduces businessmen into capital consumption and malinvestment until consumers demonstrate that they prefer buying lower order consumer goods rather than higher order capital goods and the products they provide.

Mises' volume incisively covers topics of crucial importance for our age: the German paper money inflation, credit expansion, the business cycle, deficit financing, trade balances, gold outflow, price indices, interest rates, and the creation of bank credit. Mises' analysis led him to advocate free banking and to warn against all attempts to manipulate interest rates and the quantity of money and credit: “The most important prerequisite of any cyclical policy, no matter how modest its goal may be, is to renounce every attempt to reduce the interest rate, by means of banking policy, below the rate which develops on the market.”

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