Mises’s essay examines whether a currency depreciated by inflation should be stabilized at its current value or restored to its former metallic parity. Intended for the forthcoming revised edition of Theorie des Geldes und der Umlaufmittel, it moves from the political obstacles to deflation to a critique of its legal and economic justification. Its central contention is that raising money’s purchasing power cannot simply reverse inflation’s injustices: it creates new transfers among people whose holdings and obligations have changed.
Die auf die Hebung des inneren objektiven Tauschwertes des Geldes gerichtete Politik wird nach dem wichtigsten Mittel, dessen sie sich bedienen kann, Restriktionismus oder Deflationismus genannt.
English translation: The policy directed at raising the inner objective exchange value of money is called, after the most important means of which it can avail itself, restrictionism or deflationism.
Mises treats monetary appreciation more broadly than the withdrawal of notes. Money’s value can also rise when its supply remains unchanged or grows too slowly to meet increased demand. The defining objective is higher purchasing power, not a particular technique of contraction.
The political asymmetry between inflation and deflation begins with government finance:
Der Inflationismus verdankt seinen Ursprung und seine Beliebtheit dem Umstande, daß er der Regierung neue Einnahmsquellen erschließt.
English translation: Inflationism owes its origin and its popularity to the circumstance that it opens up new sources of revenue for the government.
Inflation supplies governments with revenue, whereas restriction requires expenditure to retire notes or the surrender of prospective revenue. Fiscal incentives therefore favor depreciation independently of its wider distributional consequences.
Doch die geringe Volkstümlichkeit des Restriktionismus hat noch andere Ursachen.
English translation: Yet the slight popularity of restrictionism has still other causes.
These further obstacles concern international trade and creditor–debtor relations. Currency appreciation makes exporting harder and importing easier. Domestically, it benefits creditors, burdens debtors, and increases the real weight of taxation, often benefiting holders of public debt. Even savers may identify more strongly with their interests as workers, producers, or traders than as recipients of interest.
The decisive issue arises after inflation, when restoring parity appears to fulfill an outstanding promise. Mises acknowledges that suspending cash redemption violated the commitment under which notes originally entered circulation. He nevertheless distinguishes their origin as redeemable claims from their subsequent monetary function. Once notes become credit money, their valuation rests on their monetary services rather than simply on prospective redemption.
This distinction challenges the claim that stabilization at a depreciated parity necessarily constitutes sovereign bankruptcy. Stabilization concerns private as well as public obligations, including claims held by the state, while leaving debts denominated in metallic or foreign currency untouched. Contracts concluded at the depreciated value need not undergo a fresh redistribution when that value is stabilized.
Restoring parity, by contrast, enriches current holders of money and monetary claims at the expense of debtors and taxpayers. Its beneficiaries are not necessarily those injured by inflation, nor are those bearing its costs necessarily inflation’s former beneficiaries. Returning a monetary unit to its earlier purchasing power cannot return assets, liabilities, and losses to their former owners. An apparent act of restitution can thus impose a new injury.
Mises consequently separates compensation for creditors from general monetary appreciation. Recalculating debts according to the currency’s value when obligations arose, illustrated by Austrian devaluation in 1811, addresses particular contracts more directly. Yet such schemes leave repaid debts untouched and encounter difficulties with changed ownership, current-account transactions, and bearer securities. He does not resolve these problems, but identifies contractual conversion rather than general deflation as the relevant avenue for possible compensation.
The final argument concerns creditworthiness. Restoration might reassure lenders that future inflation would eventually be corrected. This consideration matters particularly for England, given London’s international banking business and its dependence on confidence in sterling. Mises nevertheless regards it as partly psychological rather than decisive: other measures might restore confidence, while appreciation still rewards purchasers who suffered no original loss and fails to compensate former creditors who sold their claims.
The conclusion allows a limited exception where prices have not yet fully adjusted to the changed relation between money supply and demand. The closing footnote excludes contemporary Austria: prices had broadly adjusted, and their decline following stabilization in autumn 1922 contradicted the claim that stabilization had fixed money’s value too low. The essay therefore distinguishes monetary stabilization from retrospective compensation, showing how an ostensibly restorative parity can produce fresh redistribution instead of repairing earlier losses.
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