Ludwig von Mises · 1913
Mises’s essay intervenes in the contemporary debate over “Teuerung” by arguing that rising prices cannot be understood through statistical description alone. Empirical series and index numbers may record price movements, but they cannot by themselves identify whether one is observing relative-price changes or a fall in the purchasing power of money.
Dem Problem der Teuerung, das nun seit Jahr und Tag wieder einmal die Geister beschäftigt, ist mit der üblichen statistisch-empirischen Behandlungsweise nicht beizukommen.
English translation: The problem of rising prices, which has once again occupied minds for some time now, cannot be handled with the customary statistical-empirical approach.
The essay’s central distinction is between special and general dearness. Particular commodities may become dearer because of harvests, tariffs, transport conditions, taxes, monopolistic restrictions, or shifts in demand. These movements are relative: they alter the exchange ratio between one good and others. General dearness, however, cannot mean that all goods have become dearer in terms of one another. It means that the money side of exchange has changed.
Sehen wir von der Tatsache des Geldgebrauchs ab, so ergibt sich klar, daß ein Gut nicht teurer werden kann, ohne daß alle anderen Güter billiger werden.
English translation: If we set aside the fact of the use of money, it becomes clear that one good cannot become more expensive without all other goods becoming cheaper.
From this point Mises identifies general inflation as a monetary phenomenon: money has declined in purchasing power against commodities as a whole. This does not imply a mechanical “price level” doctrine. The value of money depends on money supply, money substitutes, and the demand to hold cash balances; the latter cannot be measured with precision, because it rests on subjective valuations and institutional habits. Mises therefore defends the quantity-theory insight while rejecting any claim that price changes are uniform, instantaneous, or exactly calculable.
Der andere, der Geldbedarf, ist eine von subjektiven Momenten abhängige Größe, die im besten Falle annäherungsweise geschätzt werden kann.
English translation: The other, the demand for money, is a magnitude dependent on subjective factors that can at best be estimated approximately.
His critique of index numbers follows from the same theoretical position. Indexes aggregate heterogeneous goods according to arbitrary selections and weights, and they obscure the fact that different classes experience price changes differently. Mises does not deny their practical interest, but he denies that they can serve as an exact measure of purchasing-power change.
Sie erblicken in den Indexzahlen einen genauen Maßstab der Schwankungen der Kaufkraft, ein Vorgehen, das auch dann nicht milder zu beurteilen ist, wenn man nach verschiedenen Grundsätzen aufgebaute Indexziffern mehrerer Systeme kombiniert.
English translation: They see in index numbers a precise measure of the fluctuations of purchasing power—a procedure that is not to be judged any more leniently when one combines index numbers of several systems constructed on differing principles.
The essay also develops a process account of inflation. In a money economy, sellers set prices under uncertainty, buyers accept higher prices when they expect higher money incomes, and expectations of depreciation can help propagate further depreciation. Price movements begin at definite points and spread unevenly. Early recipients of new money, or groups able to raise selling prices quickly, gain before their costs rise; fixed-income groups, creditors, and late receivers lose.
This unevenness is central to Mises’s social analysis. If all money prices and incomes rose together and proportionately, inflation would mainly disturb fixed contracts. In reality, it redistributes wealth through timing. The same reasoning shapes his treatment of wages: unions may secure higher money wages temporarily, but they cannot permanently raise general real wages above the level fixed by productivity and market conditions unless those underlying conditions change.
Mises also rejects “cost-push” accounts of general dearness. Scarce raw materials or higher factor prices may explain why some goods rise relative to others, but not why money prices generally rise. In subjective value theory, production goods derive their value from expected consumer-goods prices, so treating costs as the ultimate cause of general inflation reverses the causal order.
The policy implication is a taxonomy of remedies. Special dearness caused by restrictions should be met by removing the restriction. General monetary dearness requires attention to money issue, fiduciary media, and credit expansion. The essay’s lasting importance lies in its fusion of subjective value theory and monetary theory: inflation is not a homogeneous rise in a statistical price level, but a sequential market process that changes purchasing power, contracts, and distribution unevenly.
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