by Mises
[Title Page and Corrigenda]: Title page and publication details for the first edition of Mises's seminal work on money and credit, including a brief list of errata (corrigenda). [Preface (Vorwort)]: Mises provides an overview of the state of monetary and banking literature in 1911. He credits Menger and Wieser with applying subjective value theory to money but critiques the Banking School (Tooke, Fullarton) for lacking a theoretical foundation. He acknowledges Wicksell's contributions and emphasizes that his own work is built upon Böhm-Bawerk's theory of interest, aiming to bridge the gap between economic theory and monetary policy. [Table of Contents (Inhaltsverzeichnis)]: A comprehensive table of contents detailing the four books of the work: The Nature of Money, The Value of Money, Fiduciary Media and their Relation to Money, and a Look into the Future of Money and Fiduciary Media. [Book 1, Chapter 1: The Function of Money]: Mises discusses the economic prerequisites for money, arguing it is unnecessary in isolated or socialist economies but essential in a society based on private property and the division of labor. He explains the evolution from direct to indirect exchange, where individuals seek more marketable goods to facilitate trade, eventually leading to the emergence of a single general medium of exchange: money. [Secondary Functions of Money]: Mises critiques the tendency to list numerous 'functions' of money, arguing that all secondary functions—such as being a standard for deferred payments, a store of value, or a medium of payment—are merely derivatives of its primary function as a medium of exchange. He specifically addresses the legalistic view of money as a 'means of payment' and explains how even unilateral transfers like taxes or gifts can be viewed as exchange processes. [Book 1, Chapter 2: On the Measurement of Value]: Mises argues that subjective value is not measurable but only rankable (ordinal). He critiques attempts by Böhm-Bawerk, Fisher, and Schumpeter to treat utility as a cardinal quantity that can be measured or integrated. He concludes that money does not 'measure' value; rather, it serves as a price indicator, allowing individuals to navigate market relations by providing a common denominator for exchange ratios. [Book 1, Chapter 3: Forms of Money and Money Substitutes]: Mises distinguishes between 'money' and 'money substitutes' (Geldsurrogate). He defines money substitutes as secure, instantly redeemable claims to money that circulate in place of money itself. He introduces a tripartite classification of money: Commodity Money (Sachgeld), Credit Money (Kreditgeld), and Fiat Money (Zeichengeld). He critiques the 'State Theory of Money' (Knapp) and the popular distinction between hard money and paper money, emphasizing that economic function, not physical material, defines these categories. [Commodity Money and Nominalism]: Mises defends the view that modern metallic money is commodity money (Sachgeld). He attacks nominalist theories which claim money is a mere unit of account created by the state. By examining monetary history and the function of the gold standard, he demonstrates that the value of money rests on the market's valuation of the underlying metal, not on state decrees or 'nominal' units. [Book 1, Chapter 4: Money and the State]: Mises explores the relationship between the state and money. He argues that the state cannot create money by decree; money arises from market practice. While the state can influence money through its role as a large market participant, a minter, and a regulator of legal tender for past debts, it cannot dictate the exchange value of money. He uses the failure of bimetallism and the transition to the gold standard in Germany and Austria-Hungary to illustrate that successful monetary policy requires the state to work within market laws. [Book 1, Chapter 5: Money in the Circle of Economic Goods]: Mises analyzes whether money is a production good or a consumption good, concluding it is neither, but rather a 'medium of exchange'—a third category of goods. He critiques Böhm-Bawerk for including money in 'social capital,' arguing that while money is 'private capital' for an individual, it does not function as a productive factor for society as a whole. Changes in the quantity of money do not increase social wealth, distinguishing it from true capital goods. [Book 1, Chapter 6: Opponents of Money]: Mises examines socialist and reformist critiques of money. He argues that a truly socialist state without exchange would have no use for money, and 'labor certificates' would not function as money. He also critiques reformers who seek to eliminate money while keeping private property, as well as those who believe 'elastic credit' can solve social problems, pointing out the theoretical flaws in the Banking School's approach. [Book 2, Chapter 1: The Nature of the Value of Money]: Mises begins the second book by defining the value of money as its objective exchange value (purchasing power). He explains that the subjective value of money is derived from its objective exchange value—the anticipated utility of the goods it can buy. He discusses how the value of commodity money (like gold) is influenced by both its monetary and industrial uses, and how these two sources of value interact. [The Historical Foundation of the Objective Exchange Value of Money]: Mises applies the Menger-Böhm price law to money, arguing that the subjective value of money is derived from the anticipated utility of goods it can purchase. He introduces the 'regression theorem' concept, explaining that current purchasing power is linked to yesterday's, tracing back to a point where the money-commodity had direct industrial or consumption utility before its use as a medium of exchange. [The Necessity of Pre-existing Value for Money and Rejection of Fictionalism]: Mises argues that any object used as money must have possessed objective exchange value due to non-monetary uses before becoming a medium of exchange. He uses this to reject theories claiming money arises from social convention or fiction, applying this logic even to credit and token money which originate from previously valued claims or coins. [The Historical Component of Money vs. Other Economic Goods]: Mises distinguishes between the price formation of ordinary goods and money. While ordinary prices are determined by current subjective valuations regardless of history, money's value uniquely contains a historical component. He critiques Zwiedineck's theory of price inertia, arguing that while social forces and habits might slow price changes, they do not constitute a causal law of price formation except in the specific case of money's purchasing power. [Critique of Existing Monetary Theories and the Subjective Value Gap]: Mises reviews the history of monetary theory, noting that neither the classical cost-of-production theories nor the early quantity theories (Davanzati, Locke) fully explained the origin of money's value. He critiques modern thinkers like Wicksell and Helfferich for claiming marginal utility theory cannot apply to money due to a perceived circularity. Mises argues his historical regression approach resolves this circularity by linking current subjective valuation to past objective exchange value. [The Social Utility of Money and Individual Valuation]: Mises refutes Helfferich's claim that money is unique because its utility increases with its value. He argues that valuation must always proceed from the individual subject in a market context, not from a 'national economy' perspective. In a socialist or non-exchange society, money would have no utility and thus no value. [Internal vs. External Exchange Value of Money]: Mises defines the distinction between internal and external exchange value. Internal value refers to changes originating on the side of money itself (supply/demand for money), while external value refers to the general movement of prices. He adopts Menger's terminology despite its linguistic flaws for the sake of scientific continuity. [Monetary Function and the Value of Paper vs. Commodity Money]: Mises discusses the popular and scientific misconceptions regarding 'good' (metal) and 'bad' (paper) money. He critiques Laughlin's view that irredeemable paper money only has value based on the prospect of future redemption, using the history of the Austrian Gulden to prove that money's function as a medium of exchange provides value independent of its status as a claim. [Refining the Quantity Theory through Subjective Value]: Mises evaluates the Quantity Theory, noting its historical importance but criticizing its mechanical application. He argues it must be grounded in subjective value theory. The core insight—that changes in money supply and demand affect its value—is useful only if the mechanism of how these changes affect individual valuations and market actions is understood. [Individual Money Demand and the Role of Money Substitutes]: Mises defines the demand for money as the sum of individual demands for cash balances. He introduces a critical distinction between 'money certificates' (fully backed substitutes) and 'fiduciary media' (unbacked substitutes). He argues that individual cash holding decisions are based on subjective utility, influenced by the organization of the economy and the availability of substitutes. [The Mechanism of Price Changes Following Money Supply Increases]: Mises describes how an increase in the money supply spreads through the economy. It does not raise all prices simultaneously or proportionally. Instead, it benefits the first recipients of the new money, who bid up prices for the goods they desire. This 'step-by-step' process results in a permanent shift in relative prices and a redistribution of wealth, refuting the mechanical 'proportionality' version of the Quantity Theory. [Critique of Mathematical and Mechanical Monetary Formulas]: Mises critiques Irving Fisher's mathematical approach to the Quantity Theory. He argues that Fisher's examples (like renaming currency units) do not prove a proportional relationship between money quantity and value in real economic terms. He asserts that money value is governed by the same subjective laws as other goods, and mathematical formulas fail to capture the underlying human valuations. [The Fallacy of the 'Hoarding' Buffer and the Banking Principle]: Mises attacks the 'Banking Principle' idea that hoards (hoards/reserves) act as a buffer that automatically absorbs excess money or releases it during shortages to stabilize value. He argues that all money is part of someone's cash balance and serves a purpose; there is no 'idle' money. Changes in money supply always affect subjective valuations and thus prices, regardless of 'hoards'. [Declining Demand for Money and Demonetization]: Mises examines the rare cases of declining demand for money. While the long-term trend is increasing demand due to population and trade growth, specific money types can lose value through demonetization (e.g., the 19th-century shift away from silver). He notes that during crises, the demand for 'money in the narrower sense' (cash) can spike suddenly when fiduciary media fail. [Causes of Changes in the Objective Exchange Value of Money Rooted in Indirect Exchange]: Mises examines specific causes for changes in money's objective exchange value arising from the nature of indirect exchange. He critiques Wagner's theory that supply-side dominance leads to a general increase in prices (Verteuerung), arguing instead that competition in a free market actually accelerates price adjustments. He also refutes Wieser's theory that the transition from a natural economy to a money economy inherently lowers money's value, explaining that while some goods rise in subjective value when they become exchangeable, others necessarily fall, maintaining an overall balance in the value scale. [The Mechanism of Price Increases and the Role of Fixed Prices]: This section explores how price increases propagate through the economy from the money side. Mises discusses the phenomenon of 'fixed prices' set by monopolies and cartels in unorganized markets, where sellers test consumer valuation through trial and error. He argues that price increases often lead to a chain reaction (e.g., higher food prices leading to higher wages, then higher product prices). He critiques mechanical versions of the quantity theory, noting that an increase in prices does not automatically lead to a proportional increase in the demand for money (cash balances), as individuals may instead optimize their holdings. [The Influence of Monetary Units and Denominations on Exchange Value]: An excursus on whether the size of the monetary unit or its physical denominations affect purchasing power. Mises concludes that while the unit size is irrelevant for wholesale trade, it has minor psychological and practical effects in retail due to the limits of divisibility and the tendency toward 'rounding' prices to match available coins. [Alleged Local Differences in the Objective Exchange Value of Money]: Mises argues against the popular notion that the purchasing power of money varies by location. He asserts that once transport costs, taxes, and quality differences are accounted for, money's exchange value tends toward equalization globally. Apparent differences in the 'cost of living' are usually due to different subjective needs or the quality of local services (e.g., living in a spa town) rather than a difference in the value of money itself. He critiques Wieser's view that national production costs or labor immobility sustain permanent differences in national money values. [The Exchange Relationship Between Different Types of Money]: This chapter examines how exchange rates are determined between different types of money (e.g., gold vs. silver). Mises argues that the exchange ratio is determined by the respective purchasing power of each money against goods. He critiques the mercantilist focus on the balance of payments, siding with the classical view (Hume, Ricardo) that money distributes itself according to demand (marginal utility). He explains that international gold flows are the result, not the cause, of changes in money demand and that exchange rate fluctuations act as a corrective mechanism to restore equilibrium between different currency areas. [The Problem of Measuring the Objective Exchange Value of Money]: Mises discusses the impossibility of accurately measuring changes in money's purchasing power. He distinguishes between 'external' and 'internal' objective exchange value. He critiques index number methods, including Wieser's budget-based approach, arguing they rely on the false assumption that the exchange relationships between all other goods remain constant. Since subjective valuations and economic structures are always in flux, there is no fixed point against which to measure money's value objectively. [Social Consequences of Changes in the Value of Money]: Mises analyzes how monetary changes affect different social classes. Because changes in the value of money do not happen simultaneously or uniformly, they cause shifts in wealth. Early receivers of new money (e.g., mine owners or those first receiving bank credit) gain at the expense of late receivers (e.g., laborers or farmers) whose costs rise before their incomes. He notes that inflation generally favors debtors and entrepreneurs while harming creditors and those with fixed incomes. He also discusses the impact of exchange rate fluctuations on international trade and the 'export premium' created by a falling currency. [Monetary Policy and the History of Inflationism]: This chapter reviews the history and theory of monetary policy, specifically efforts to influence money's value for social or political ends. Mises critiques 'inflationism'—the policy of deliberately lowering money's value to stimulate the economy or relieve debtors. He provides a detailed history of inflationist movements, including the Birmingham School (Attwood), the American Greenback and Silver movements, and European bimetallism. He argues that while inflation provides a temporary stimulus, it ultimately only redistributes wealth and creates economic instability. He concludes that the ideal of a 'stable' money is best approached by a commodity standard (gold) that is independent of state intervention. [The Nature of Banking and Fiduciary Media]: Mises defines the two primary functions of banking: credit mediation (lending existing funds) and the issuance of fiduciary media (Umlaufsmittel), which are unbacked notes or deposits used as money. He introduces a critical distinction between 'commodity credit' (Sachkredit), involving the exchange of present goods for future goods, and 'circulation credit' (Zirkulationskredit), where the lender grants credit by issuing fiduciary media without undergoing any personal sacrifice of present goods. This distinction is fundamental to his theory of how banks influence the money supply and interest rates. [The Evolution of Fiduciary Media and Clearing Systems]: Mises traces the development of fiduciary media from early deposit banking to modern banknotes and checkable deposits. He explains how clearing systems (skontration) reduce the demand for money by offsetting debts. He discusses the 'Gold Exchange Standard' (exemplified by India), arguing it is not a fundamentally different system but merely a variation of the gold standard where fiduciary media (silver rupees) are used domestically while being convertible into gold for international settlements. He also explores the theoretical possibility and practical obstacles of an international world bank and international fiduciary media. [Fiduciary Media and the Demand for Money]: Mises critiques the Banking School's doctrine of 'elasticity'—the idea that the supply of banknotes automatically adjusts to the 'needs of trade.' He argues that the demand for credit is not a fixed quantity but depends on the interest rate set by banks. If banks lower the interest rate below the 'natural' rate of interest, they can expand the supply of fiduciary media indefinitely. He analyzes the seasonal and cyclical fluctuations in money demand and how bank policy interacts with these shifts, concluding that fiduciary media do not automatically stabilize the value of money but rather introduce a discretionary element into its supply. [The Redemption of Fiduciary Media and Bank Liquidity]: This chapter examines the necessity and mechanism of redeeming fiduciary media in money. Mises argues that while no bank can survive a general panic (as fiduciary media are by definition unbacked), a reserve is necessary to handle international settlements and maintain parity. He critiques traditional views on 'bankable' assets (like short-term bills), arguing their primary value is in limiting the total volume of credit rather than ensuring liquidity during a run. He also discusses the modern practice of central banks holding foreign exchange (Devisen) as part of their reserves to reduce the costs of maintaining the gold standard. [Money, Fiduciary Media, and the Interest Rate]: Mises presents his seminal theory on the relationship between fiduciary media and interest rates. He builds on Wicksell's distinction between the 'natural' rate of interest (determined by the supply of real capital) and the 'money' rate. He argues that when banks expand circulation credit by issuing fiduciary media, they artificially lower the money rate below the natural rate. This induces entrepreneurs to embark on longer, more capital-intensive production processes for which the real subsistence fund is insufficient. This 'malinvestment' eventually leads to a shortage of consumption goods, rising prices, and an inevitable economic crisis as the market corrects the discrepancy. This section forms the core of the 'Austrian Theory of the Trade Cycle.' [Legal Restrictions on Fiduciary Media and Discount Policy]: Mises evaluates the legal frameworks governing bank issuance, such as Peel's Act of 1844. He argues that while these laws were based on flawed theories (ignoring checkable deposits), they served a useful purpose in limiting inflation. He critiques 'gold premium' policies (like those of the Bank of France) and other 'small means' used by central banks to discourage gold exports without raising interest rates. He asserts that in a globalized economy, a central bank cannot maintain an independent interest rate; it must raise its discount rate to protect its solvency whenever the money rate falls below the international natural rate of capital. [The Future of Money and Fiduciary Media]: In the concluding section, Mises looks toward the future of the monetary system. He dismisses the 'tabular standard' (indexing contracts to a basket of goods) as a solution to money's instability. He warns that the continued development of fiduciary media and the potential for a centralized world bank or bank cartels could lead to unlimited inflation. He notes the trend toward industrial cartels and monopolies, which might further accelerate the decline in money's purchasing power. He suggests that the only way to ensure stability is to suppress the further issuance of fiduciary media, returning to the core principle of Peel's Act. [Bibliography and Publisher Advertisements]: A list of contemporary economic and legal works published by Duncker & Humblot, including key texts on monetary theory by Knapp, Bendixen, Helfferich, and others.
Title page and publication details for the first edition of Mises's seminal work on money and credit, including a brief list of errata (corrigenda).
Read full textMises provides an overview of the state of monetary and banking literature in 1911. He credits Menger and Wieser with applying subjective value theory to money but critiques the Banking School (Tooke, Fullarton) for lacking a theoretical foundation. He acknowledges Wicksell's contributions and emphasizes that his own work is built upon Böhm-Bawerk's theory of interest, aiming to bridge the gap between economic theory and monetary policy.
Read full textA comprehensive table of contents detailing the four books of the work: The Nature of Money, The Value of Money, Fiduciary Media and their Relation to Money, and a Look into the Future of Money and Fiduciary Media.
Read full textMises discusses the economic prerequisites for money, arguing it is unnecessary in isolated or socialist economies but essential in a society based on private property and the division of labor. He explains the evolution from direct to indirect exchange, where individuals seek more marketable goods to facilitate trade, eventually leading to the emergence of a single general medium of exchange: money.
Read full textMises critiques the tendency to list numerous 'functions' of money, arguing that all secondary functions—such as being a standard for deferred payments, a store of value, or a medium of payment—are merely derivatives of its primary function as a medium of exchange. He specifically addresses the legalistic view of money as a 'means of payment' and explains how even unilateral transfers like taxes or gifts can be viewed as exchange processes.
Read full textMises argues that subjective value is not measurable but only rankable (ordinal). He critiques attempts by Böhm-Bawerk, Fisher, and Schumpeter to treat utility as a cardinal quantity that can be measured or integrated. He concludes that money does not 'measure' value; rather, it serves as a price indicator, allowing individuals to navigate market relations by providing a common denominator for exchange ratios.
Read full textMises distinguishes between 'money' and 'money substitutes' (Geldsurrogate). He defines money substitutes as secure, instantly redeemable claims to money that circulate in place of money itself. He introduces a tripartite classification of money: Commodity Money (Sachgeld), Credit Money (Kreditgeld), and Fiat Money (Zeichengeld). He critiques the 'State Theory of Money' (Knapp) and the popular distinction between hard money and paper money, emphasizing that economic function, not physical material, defines these categories.
Read full textMises defends the view that modern metallic money is commodity money (Sachgeld). He attacks nominalist theories which claim money is a mere unit of account created by the state. By examining monetary history and the function of the gold standard, he demonstrates that the value of money rests on the market's valuation of the underlying metal, not on state decrees or 'nominal' units.
Read full textMises explores the relationship between the state and money. He argues that the state cannot create money by decree; money arises from market practice. While the state can influence money through its role as a large market participant, a minter, and a regulator of legal tender for past debts, it cannot dictate the exchange value of money. He uses the failure of bimetallism and the transition to the gold standard in Germany and Austria-Hungary to illustrate that successful monetary policy requires the state to work within market laws.
Read full textMises analyzes whether money is a production good or a consumption good, concluding it is neither, but rather a 'medium of exchange'—a third category of goods. He critiques Böhm-Bawerk for including money in 'social capital,' arguing that while money is 'private capital' for an individual, it does not function as a productive factor for society as a whole. Changes in the quantity of money do not increase social wealth, distinguishing it from true capital goods.
Read full textMises examines socialist and reformist critiques of money. He argues that a truly socialist state without exchange would have no use for money, and 'labor certificates' would not function as money. He also critiques reformers who seek to eliminate money while keeping private property, as well as those who believe 'elastic credit' can solve social problems, pointing out the theoretical flaws in the Banking School's approach.
Read full textMises begins the second book by defining the value of money as its objective exchange value (purchasing power). He explains that the subjective value of money is derived from its objective exchange value—the anticipated utility of the goods it can buy. He discusses how the value of commodity money (like gold) is influenced by both its monetary and industrial uses, and how these two sources of value interact.
Read full textMises applies the Menger-Böhm price law to money, arguing that the subjective value of money is derived from the anticipated utility of goods it can purchase. He introduces the 'regression theorem' concept, explaining that current purchasing power is linked to yesterday's, tracing back to a point where the money-commodity had direct industrial or consumption utility before its use as a medium of exchange.
Read full textMises argues that any object used as money must have possessed objective exchange value due to non-monetary uses before becoming a medium of exchange. He uses this to reject theories claiming money arises from social convention or fiction, applying this logic even to credit and token money which originate from previously valued claims or coins.
Read full textMises distinguishes between the price formation of ordinary goods and money. While ordinary prices are determined by current subjective valuations regardless of history, money's value uniquely contains a historical component. He critiques Zwiedineck's theory of price inertia, arguing that while social forces and habits might slow price changes, they do not constitute a causal law of price formation except in the specific case of money's purchasing power.
Read full textMises reviews the history of monetary theory, noting that neither the classical cost-of-production theories nor the early quantity theories (Davanzati, Locke) fully explained the origin of money's value. He critiques modern thinkers like Wicksell and Helfferich for claiming marginal utility theory cannot apply to money due to a perceived circularity. Mises argues his historical regression approach resolves this circularity by linking current subjective valuation to past objective exchange value.
Read full textMises refutes Helfferich's claim that money is unique because its utility increases with its value. He argues that valuation must always proceed from the individual subject in a market context, not from a 'national economy' perspective. In a socialist or non-exchange society, money would have no utility and thus no value.
Read full textMises defines the distinction between internal and external exchange value. Internal value refers to changes originating on the side of money itself (supply/demand for money), while external value refers to the general movement of prices. He adopts Menger's terminology despite its linguistic flaws for the sake of scientific continuity.
Read full textMises discusses the popular and scientific misconceptions regarding 'good' (metal) and 'bad' (paper) money. He critiques Laughlin's view that irredeemable paper money only has value based on the prospect of future redemption, using the history of the Austrian Gulden to prove that money's function as a medium of exchange provides value independent of its status as a claim.
Read full textMises evaluates the Quantity Theory, noting its historical importance but criticizing its mechanical application. He argues it must be grounded in subjective value theory. The core insight—that changes in money supply and demand affect its value—is useful only if the mechanism of how these changes affect individual valuations and market actions is understood.
Read full textMises defines the demand for money as the sum of individual demands for cash balances. He introduces a critical distinction between 'money certificates' (fully backed substitutes) and 'fiduciary media' (unbacked substitutes). He argues that individual cash holding decisions are based on subjective utility, influenced by the organization of the economy and the availability of substitutes.
Read full textMises describes how an increase in the money supply spreads through the economy. It does not raise all prices simultaneously or proportionally. Instead, it benefits the first recipients of the new money, who bid up prices for the goods they desire. This 'step-by-step' process results in a permanent shift in relative prices and a redistribution of wealth, refuting the mechanical 'proportionality' version of the Quantity Theory.
Read full textMises critiques Irving Fisher's mathematical approach to the Quantity Theory. He argues that Fisher's examples (like renaming currency units) do not prove a proportional relationship between money quantity and value in real economic terms. He asserts that money value is governed by the same subjective laws as other goods, and mathematical formulas fail to capture the underlying human valuations.
Read full textMises attacks the 'Banking Principle' idea that hoards (hoards/reserves) act as a buffer that automatically absorbs excess money or releases it during shortages to stabilize value. He argues that all money is part of someone's cash balance and serves a purpose; there is no 'idle' money. Changes in money supply always affect subjective valuations and thus prices, regardless of 'hoards'.
Read full textMises examines the rare cases of declining demand for money. While the long-term trend is increasing demand due to population and trade growth, specific money types can lose value through demonetization (e.g., the 19th-century shift away from silver). He notes that during crises, the demand for 'money in the narrower sense' (cash) can spike suddenly when fiduciary media fail.
Read full textMises examines specific causes for changes in money's objective exchange value arising from the nature of indirect exchange. He critiques Wagner's theory that supply-side dominance leads to a general increase in prices (Verteuerung), arguing instead that competition in a free market actually accelerates price adjustments. He also refutes Wieser's theory that the transition from a natural economy to a money economy inherently lowers money's value, explaining that while some goods rise in subjective value when they become exchangeable, others necessarily fall, maintaining an overall balance in the value scale.
Read full textThis section explores how price increases propagate through the economy from the money side. Mises discusses the phenomenon of 'fixed prices' set by monopolies and cartels in unorganized markets, where sellers test consumer valuation through trial and error. He argues that price increases often lead to a chain reaction (e.g., higher food prices leading to higher wages, then higher product prices). He critiques mechanical versions of the quantity theory, noting that an increase in prices does not automatically lead to a proportional increase in the demand for money (cash balances), as individuals may instead optimize their holdings.
Read full textAn excursus on whether the size of the monetary unit or its physical denominations affect purchasing power. Mises concludes that while the unit size is irrelevant for wholesale trade, it has minor psychological and practical effects in retail due to the limits of divisibility and the tendency toward 'rounding' prices to match available coins.
Read full textMises argues against the popular notion that the purchasing power of money varies by location. He asserts that once transport costs, taxes, and quality differences are accounted for, money's exchange value tends toward equalization globally. Apparent differences in the 'cost of living' are usually due to different subjective needs or the quality of local services (e.g., living in a spa town) rather than a difference in the value of money itself. He critiques Wieser's view that national production costs or labor immobility sustain permanent differences in national money values.
Read full textThis chapter examines how exchange rates are determined between different types of money (e.g., gold vs. silver). Mises argues that the exchange ratio is determined by the respective purchasing power of each money against goods. He critiques the mercantilist focus on the balance of payments, siding with the classical view (Hume, Ricardo) that money distributes itself according to demand (marginal utility). He explains that international gold flows are the result, not the cause, of changes in money demand and that exchange rate fluctuations act as a corrective mechanism to restore equilibrium between different currency areas.
Read full textMises discusses the impossibility of accurately measuring changes in money's purchasing power. He distinguishes between 'external' and 'internal' objective exchange value. He critiques index number methods, including Wieser's budget-based approach, arguing they rely on the false assumption that the exchange relationships between all other goods remain constant. Since subjective valuations and economic structures are always in flux, there is no fixed point against which to measure money's value objectively.
Read full textMises analyzes how monetary changes affect different social classes. Because changes in the value of money do not happen simultaneously or uniformly, they cause shifts in wealth. Early receivers of new money (e.g., mine owners or those first receiving bank credit) gain at the expense of late receivers (e.g., laborers or farmers) whose costs rise before their incomes. He notes that inflation generally favors debtors and entrepreneurs while harming creditors and those with fixed incomes. He also discusses the impact of exchange rate fluctuations on international trade and the 'export premium' created by a falling currency.
Read full textThis chapter reviews the history and theory of monetary policy, specifically efforts to influence money's value for social or political ends. Mises critiques 'inflationism'—the policy of deliberately lowering money's value to stimulate the economy or relieve debtors. He provides a detailed history of inflationist movements, including the Birmingham School (Attwood), the American Greenback and Silver movements, and European bimetallism. He argues that while inflation provides a temporary stimulus, it ultimately only redistributes wealth and creates economic instability. He concludes that the ideal of a 'stable' money is best approached by a commodity standard (gold) that is independent of state intervention.
Read full textMises defines the two primary functions of banking: credit mediation (lending existing funds) and the issuance of fiduciary media (Umlaufsmittel), which are unbacked notes or deposits used as money. He introduces a critical distinction between 'commodity credit' (Sachkredit), involving the exchange of present goods for future goods, and 'circulation credit' (Zirkulationskredit), where the lender grants credit by issuing fiduciary media without undergoing any personal sacrifice of present goods. This distinction is fundamental to his theory of how banks influence the money supply and interest rates.
Read full textMises traces the development of fiduciary media from early deposit banking to modern banknotes and checkable deposits. He explains how clearing systems (skontration) reduce the demand for money by offsetting debts. He discusses the 'Gold Exchange Standard' (exemplified by India), arguing it is not a fundamentally different system but merely a variation of the gold standard where fiduciary media (silver rupees) are used domestically while being convertible into gold for international settlements. He also explores the theoretical possibility and practical obstacles of an international world bank and international fiduciary media.
Read full textMises critiques the Banking School's doctrine of 'elasticity'—the idea that the supply of banknotes automatically adjusts to the 'needs of trade.' He argues that the demand for credit is not a fixed quantity but depends on the interest rate set by banks. If banks lower the interest rate below the 'natural' rate of interest, they can expand the supply of fiduciary media indefinitely. He analyzes the seasonal and cyclical fluctuations in money demand and how bank policy interacts with these shifts, concluding that fiduciary media do not automatically stabilize the value of money but rather introduce a discretionary element into its supply.
Read full textThis chapter examines the necessity and mechanism of redeeming fiduciary media in money. Mises argues that while no bank can survive a general panic (as fiduciary media are by definition unbacked), a reserve is necessary to handle international settlements and maintain parity. He critiques traditional views on 'bankable' assets (like short-term bills), arguing their primary value is in limiting the total volume of credit rather than ensuring liquidity during a run. He also discusses the modern practice of central banks holding foreign exchange (Devisen) as part of their reserves to reduce the costs of maintaining the gold standard.
Read full textMises presents his seminal theory on the relationship between fiduciary media and interest rates. He builds on Wicksell's distinction between the 'natural' rate of interest (determined by the supply of real capital) and the 'money' rate. He argues that when banks expand circulation credit by issuing fiduciary media, they artificially lower the money rate below the natural rate. This induces entrepreneurs to embark on longer, more capital-intensive production processes for which the real subsistence fund is insufficient. This 'malinvestment' eventually leads to a shortage of consumption goods, rising prices, and an inevitable economic crisis as the market corrects the discrepancy. This section forms the core of the 'Austrian Theory of the Trade Cycle.'
Read full textMises evaluates the legal frameworks governing bank issuance, such as Peel's Act of 1844. He argues that while these laws were based on flawed theories (ignoring checkable deposits), they served a useful purpose in limiting inflation. He critiques 'gold premium' policies (like those of the Bank of France) and other 'small means' used by central banks to discourage gold exports without raising interest rates. He asserts that in a globalized economy, a central bank cannot maintain an independent interest rate; it must raise its discount rate to protect its solvency whenever the money rate falls below the international natural rate of capital.
Read full textIn the concluding section, Mises looks toward the future of the monetary system. He dismisses the 'tabular standard' (indexing contracts to a basket of goods) as a solution to money's instability. He warns that the continued development of fiduciary media and the potential for a centralized world bank or bank cartels could lead to unlimited inflation. He notes the trend toward industrial cartels and monopolies, which might further accelerate the decline in money's purchasing power. He suggests that the only way to ensure stability is to suppress the further issuance of fiduciary media, returning to the core principle of Peel's Act.
Read full textA list of contemporary economic and legal works published by Duncker & Humblot, including key texts on monetary theory by Knapp, Bendixen, Helfferich, and others.
Read full text