Mises treats the “international monetary problem” as a misnamed domestic policy problem. Exchange crises, reserve losses, and balance-of-payments alarms are not autonomous disturbances caused by tourists, importers, speculators, or hostile foreigners. They arise when governments try to preserve fixed exchange rates while pursuing inflationary finance and cheap-credit policies at home.
What is nowadays called governmental monetary management encompasses two kinds of policy.
The essay first attacks the official vocabulary of monetary policy. Governments, in Mises’s account, deny responsibility for inflation by redefining it as rising prices rather than monetary expansion, then blame businessmen or consumers for consequences produced by policy itself. This permits officials to present controls, restrictions, and international conferences as remedies, although the disorder has already been generated by intervention. Mises’s polemic against the “new economics” is therefore also an attack on the administrative mentality that sees market adjustment as chaos and state direction as order.
Against balance-of-payments explanations, Mises reasserts purchasing-power parity as the basic logic of exchange-rate formation. Currencies exchange according to what they can buy; if one government expands its money supply faster than another, domestic prices and the foreign-exchange value of its currency must adjust. Attempts to prevent that adjustment by selling reserves merely postpone the correction and make the later crisis appear mysterious.
The theory maintained by economists, the so-called purchasing-power-parity theory, says: the exchange ratio between different currencies tends toward a point at which it does not make any difference which currency is employed in selling or buying.
The political source of the problem is monetary sovereignty. Under a genuine gold standard, Mises argues, international money would pose mainly technical questions. In the modern system, however, every state wants the privileges of national monetary control and the credibility of stable international convertibility. The two aims conflict. A government cannot inflate domestically, cheapen credit, and at the same time command foreigners and citizens to value its currency at the old rate.
In our actual world every government claims national sovereignty in all monetary matters.
Mises distinguishes inflation from inflationism to make this point precise. Inflation is an increase in the quantity of money beyond the public’s demand to hold cash balances; inflationism is the deliberate use of that increase to finance expenditure beyond taxation and genuine borrowing. Once this policy raises domestic prices, the currency’s exchange value must fall. If officials resist the fall, demand for foreign exchange rises and reserves drain. What newspapers call an “attack” on the currency is, for Mises, the market’s response to official falsification of the exchange rate.
His treatment of easy money follows the same logic. Artificially low interest rates push funds abroad and intensify demand for foreign exchange. Reserve losses therefore do not prove inadequate international liquidity; they reveal that domestic credit policy is inconsistent with the promised exchange parity. Proposals for central-bank cooperation, reserve pooling, or new international facilities merely ask other countries to help sustain the inflationary policy of the country in trouble.
The essay’s conclusion is uncompromising: international monetary order cannot be achieved by larger reserves, cleverer management, or more conferences if governments continue to debase their currencies. The external crisis is the visible form of internal monetary intervention.
Inflationism is not a variety of economic policies. It is an instrument of destruction; if not stopped very soon, it destroys the market entirely.
The appendix extends the argument to interest and profits under inflation. Anticipated depreciation raises market interest rates through a price premium, so apparently “high” rates may register inflationary expectations rather than tight money. Inflation also falsifies business accounting: depreciation allowances, inventory gains, and taxable profits may conceal capital consumption. Mises’s final lesson is that monetary disorder corrupts not only exchange rates but also calculation itself.
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