Mises’s four-part essay examines wartime currency depreciation and monetary reconstruction in postwar Austria. Its central claim is that exchange rates reflect currencies’ relative purchasing power, rather than an independently determining balance of payments. Stabilization therefore requires ending inflationary finance, not restricting imports, suppressing speculation, or imposing artificial exchange rates.
Section I begins with the monetary financing of war:
Bei der Beschaffung der Mittel für die Kriegführung spielte die Notenpresse eine große Rolle.
English translation: In the procurement of the means for the conduct of the war the printing press played a great role.
Expansion of money relative to monetary demand reduces purchasing power. Since this expansion differed among countries, depreciation was unequal:
Die Entwertung der einzelnen Geldarten war eine ganz verschiedene; daher denn auch die Verschiebung in den Valutenkursen.
English translation: The depreciation of the individual kinds of money was quite different in each case; hence too the shift in the rates of the currencies.
Mises treats international exchange as an adjustment mechanism. Departures from the “natural” or “static” exchange rate create profitable transactions tending to restore the relationship between currencies’ purchasing powers. This does not imply continuous equilibrium: new money affects prices unevenly, while currency traders anticipate changes before they become general.
Daher gelangt im Valutenkurs der Börse die Geldentwertung schon in einem verhältnismäßig frühen Stadium zum Ausdruck, jedenfalls lange bevor sie sich allen Waren und Dienstleistungen gegenüber geltend gemacht hat.
English translation: Hence the depreciation of money comes to expression in the currency quotations of the exchange already at a comparatively early stage, in any case long before it has made itself felt with respect to all goods and services.
Exchange depreciation can thus precede widespread commodity-price increases without independently causing monetary depreciation. Speculative errors, successive monetary injections, and temporary payment imbalances explain fluctuations around the underlying relationship.
Mises challenges the argument that wartime trade restrictions make the balance of payments decisive by disabling international adjustment. His engagement is motivated by the explanation’s political influence:
Es ist bekannt, daß diese Theorie heute bei uns zwar nicht die herrschende Theorie, wohl aber die Theorie der Herrschenden ist. Und aus diesem Grunde verdient sie wohl eine eingehende Prüfung.
English translation: It is well known that this theory is today among us not indeed the ruling theory, but certainly the theory of the rulers. And for this reason it surely deserves a thorough examination.
The argument, he objects, treats imports and exports as fixed quantities instead of transactions dependent on prices and profitability. Merchants consider exchange costs when entering contracts, not only when payments fall due. In his Austrian–Swiss example, a tripling of the franc exchange rate could leave imports unchanged only if Austrian selling prices accommodated the additional cost; otherwise imports would contract.
This reasoning informs his criticism of exchange controls. Banning Swiss watches does not simply redirect a fixed expenditure toward cheese, since altered demand affects prices. Compelling exporters to surrender foreign currency below market value acts like an export tax, discouraging exports and reducing the means of financing imports. Cheap official exchange favors selected importers and foreign debtors. Reconstruction instead requires access to goods and credit, without administrative obstacles to private borrowing.
Section II distinguishes speculation from the monetary conditions it anticipates. Successful speculators forecast developments; mistaken ones suffer losses. Attempts to depress a currency against underlying conditions invite counter-speculation, while official efforts to sustain an artificial valuation consume resources. Mises nevertheless allows intervention to smooth temporary fluctuations when disrupted markets prevent buyers and sellers from finding one another promptly. It cannot reverse depreciation rooted in purchasing power. Restrictions on exporting banknotes likewise confuse the currency temporarily offered abroad with the fundamental causes of its valuation.
Section III rejects the identification of military victory with monetary strength. Military outcomes affect currencies through fiscal burdens, credit conditions, inflationary expectations, and the issuing state’s survival. Peace may strengthen even a defeated country’s currency if it promises an end to monetary expansion. American Continental currency and French revolutionary assignats illustrate that military success does not prevent monetary collapse under extreme inflation.
Section IV answers the mercantilist fear that unrestricted trade drains a country of money. Mises derives the national payments balance from individual transactions and desired cash holdings: people short of money reduce purchases or sell goods, while those with excess balances spend them. Under metallic money, these adjustments maintain monetary holdings without trade controls. Convertible notes can remain compatible with this mechanism; depreciated paper legally equated with more valuable coin instead drives the latter from circulation.
The conclusion separates impoverishment and defeat from monetary instability. Foreign borrowing may be costly and reconstruction difficult, but neither makes sound money impossible. The decisive remedy is budgetary balance and the renunciation of inflationary measures, not administrative control of foreign exchange.
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