Ludwig von Mises, “Inflation Must End in a Slump” — Summary

This file is a short single-author newspaper essay, reprinted from the New York World Telegram & Sun in 1951. Its scope is deliberately narrow: Mises interprets the postwar inflationary boom as the predictable result of monetary and credit expansion, then warns that the coming downturn will be politically misread unless its monetary causes are understood.

Mises’s central thesis is that an expansionary boom is not genuine prosperity but an artificial episode created by paper money, bank credit, cheap interest, and deficit finance. The essay opens with a diagnosis of contemporary conditions:

This country, and with it most of the Western world, is presently going through a period of inflation and credit expansion.

From this starting point, Mises makes his core Austrian conceptual move: he distinguishes real capital accumulation from monetary substitutes. Rising prices and “booming” business do not prove that society has become wealthier; they may instead indicate that credit has falsified entrepreneurial calculation. Hence the boom contains its own reversal:

Yet such a boom, artificially engineered by monetary and credit expansion, cannot last forever.

The argument’s structure is compressed but clear. First, Mises states the mechanism: credit expansion produces an illusory prosperity. Second, he identifies the policy sources of recurrence: governments pursue cheap money and deficit spending because boom conditions are politically popular. Third, he turns from economics to ideology, arguing that the greatest danger is not only the crisis itself but the interpretation placed upon it.

The key causal claim is stated without qualification:

Economic theory has demonstrated in an irrefutable way that a prosperity created by an expansionist monetary and credit policy is illusory and must end in a slump, an economic crisis.

For Mises, avoiding depressions therefore requires preventing artificial booms in the first place. The practical remedy is not emergency management after collapse, but restraint before expansion begins: government must not push interest rates below market levels, borrow from banks to finance deficits, or inflate the money supply. Yet he is pessimistic about political incentives. Governments prefer present popularity to future responsibility, assuming the crash will arrive when others hold power.

The essay’s relevance lies in this fusion of business-cycle theory with political warning. Mises believes that crises become civilizationally dangerous when the public accepts the wrong explanation for them. If depression is blamed on capitalism rather than inflationary policy, then the failure of intervention will be converted into an argument for still more intervention.

Worse than the crisis itself could prove the psychological and ideological consequences of an erroneous interpretation of its causes.

This is why Marxism enters the essay. Mises treats the doctrine that crises arise from inherent capitalist defects as both economically false and politically useful to communism. His point is not merely partisan; it is epistemic. A society that misunderstands the source of the slump will choose remedies that deepen its hostility to markets.

There is no other means, they conclude, to avoid a crisis than to put the economic system under the full tutelage of a central planning board.

The final movement of the article returns to public education. Mises insists that the coming downturn would demonstrate not the failure of private enterprise, but the failure of inflationary public finance associated with the New Deal and Fair Deal. Understanding the boom’s artificial character would also discipline private conduct: businessmen and citizens would be less likely to extrapolate temporary prosperity indefinitely.

They will not fall victim to the deception that the boom will go on forever.

In sum, “Inflation Must End in a Slump” is a brief polemical exposition of Austrian business-cycle theory under Cold War conditions. Its conceptual sequence is monetary expansion → artificial boom → inevitable slump → danger of ideological misattribution. Its enduring significance is Mises’s insistence that economic crises are also battles over interpretation: if the public mistakes the consequences of intervention for the defects of capitalism, the slump becomes an opening for central planning rather than a lesson against inflationary policy.