Ludwig von Mises, Aussprache: Prof. Dr. v. Mises-Wien

Ludwig von Mises’s 1929 contribution is a transcribed discussion address on credit and the business cycle, preserved here in a facsimile republication identified by the supplied research as 2021, with its precise release date unverified. Addressing fellow economists and banking practitioners, Mises defends a credit-based explanation of recurrent crises and draws conclusions for banking policy. The speech moves from the theoretical foundations of cycle analysis through the mechanism of excessive credit creation to the political pressures that make expansion recur. Recorded laughter, applause, and references to other speakers situate its argument within a live scholarly debate.

Mises begins by rejecting the treatment of crisis theory as an autonomous specialty. A historical study’s criticism that Macleod’s crisis theory arose incidentally from his work on banks and credit becomes, for Mises, a methodological virtue. Following Böhm-Bawerk, he insists that crises must be understood through the interdependence of economic processes, rather than through explanations detached from the theory of exchange.

Das Grundproblem der Krisen- und Konjunkturlehre gehört der Theorie des indirekten, d. h. des durch Geld vermittelten Tausches an, und zwar dem besonderen Kapitel der Banktheorie, d. i. der Theorie der Umlaufsmittel.

English translation: The fundamental problem of crisis and business-cycle theory belongs to the theory of indirect exchange, that is, exchange mediated by money, and specifically to the particular chapter of banking theory concerned with fiduciary media.

The decisive question is whether banks can issue fiduciary media beyond a limit supposedly imposed by existing economic conditions. Mises credits the Currency School with recognizing the possibility of overissue, against the Banking School’s denial. Monetary theory consequently encounters the crisis problem through its own analysis: once excessive issuance can disturb equilibrium, it must explain how equilibrium is restored. Accounts founded on direct exchange, he argues, introduce crises only afterward, under pressure from observed events. Ricardo, Overstone, and “Wickell,” as the supplied text spells the name, figure as important contributors to this theoretical lineage, although Mises finds the latter’s cycle theory unsatisfactory.

Against the claim that monetary explanations actually depend on delayed adjustments of prices, wages, and interest rates, Mises replies that such delays are themselves monetary phenomena. His more consequential distinction concerns the difference between an increase in money and an expansion of bank-created credit.

Nichtsdestoweniger würde ich doch vorschlagen, den Ausdruck „monetäre Konjunkturtheorie“ durch den Ausdruck „Zirkulationskredittheorie“ zu ersetzen.

English translation: Nevertheless, I would propose replacing the expression “monetary business-cycle theory” with the expression “circulation-credit theory.”

This terminological proposal identifies a causal mechanism, not merely a preferred label. New gold supplies or printed money do not exhibit the same recurring pattern as excessive issuance of fiduciary media. Additional bank credit enters circulation as loans and directly encourages investment unsupported by the underlying economic conditions; an increase in money can instead operate initially through changes in consumption. Treating wartime inflation and recurrent credit expansion as equivalent therefore obscures the specific problem.

Mises then translates the argument into the language of business decisions. A temporary reduction of interest through bank intervention makes previously unprofitable projects appear viable. Entrepreneurs invest accordingly, although the economy’s actual capital supply cannot sustain all the undertakings. The mistake lies in monetary calculation distorted by credit expansion, rather than simply in individual entrepreneurial incompetence.

Kapital wird in Unternehmungen investiert, in denen es sonst nicht investiert worden wäre.

English translation: Capital is invested in enterprises in which it would otherwise not have been invested.

When banks stop providing additional credit on artificially cheap terms, the projects’ lack of profitability becomes evident. Public opinion commonly blames the bankers who halt expansion, but prolonging the boom would only extend the period of mistaken investment. For Mises, postponement increases the eventual severity of the crisis rather than removing its cause.

He carefully distinguishes demonstrating that such disturbances are possible from explaining why they repeatedly occur. The latter requires an institutional and political account.

Die öffentliche Meinung wünscht den Zinsfuß immer niedriger und übt auf die für die Bankpolitik verantwortlichen Stellen einen Druck zur Expansion des Zirkulationskredites aus.

English translation: Public opinion always wants the interest rate to be lower and exerts pressure on those responsible for banking policy to expand circulation credit.

Governments, parliaments, and public expectations repeatedly push banks toward cheap credit. This pressure supplies the link between a theoretical possibility and recurring cycles. Mises also argues that rival explanations implicitly require monetary accommodation to explain the price increases associated with booms. He accepts forced saving as a theoretical effect of expansion, but rejects exaggerated estimates of its magnitude and its supposed contribution to lasting productive progress.

The concluding discussion joins methodological defence to practical caution. Restrictions on note issuance demonstrate, in his view, that Currency School ideas already inform banking legislation. Their failure to eliminate crises does not invalidate the theory. Neither a blanket prohibition of further issuance nor an instruction to stabilize prices provides an uncomplicated solution: price indexes lack a uniquely authoritative construction, and the effects of monetary changes cannot be calculated precisely in advance.

Mises therefore places responsibility on prudent banking policy, insulated from political demands for cheap money. Restraint early in an upswing could limit mistaken investments and prevent severe crises, without promising an indistinct ideal of complete stability.

Wenn man diese Folgen nicht will — und ich glaube kaum, daß sie jemand will —, ergibt sich daraus für die praktische Bankpolitik die Forderung, jeden Versuch, den Zinsfuß durch Kreditexpansion zu ermäßigen, zu unterlassen.

English translation: If these consequences are not wanted—and I hardly think anyone wants them—it follows that practical banking policy must refrain from every attempt to reduce the interest rate through credit expansion.

The address’s central contribution is to connect distorted investment calculation with the institutional recurrence of credit expansion. Its closing claim of agreement between theorists and practitioners is also a rhetorical culmination: the theoretical account is presented as yielding a shared practical obligation, not as an explanation remote from banking decisions.