These two contributions to a printed discussion following Mises’s essay on quantity theory distinguish monetary explanation from political choice. Reply II examines currency restoration and its financial mechanisms; Reply IV challenges the opposition between theory and practice and considers the causal relationship between prices and note circulation. Together they argue that monetary theory explains the consequences of policy without deciding which consequences society should prefer.
Reply II treats restoration of the gold parity prescribed in 1892 as a conditional objective, not a scientific imperative. Quantity theory does not itself require restoration rather than stabilization of a depreciated currency or continued inflation. Its explanatory scope is defined precisely:
Sie gibt an, welche Folgen caeteris paribus durch eine Vermehrung oder Verminderung der unlaufenden Geldmenge ausgelöst werden.
English translation: It states what consequences are brought about, ceteris paribus, by an increase or a diminution of the quantity of money in circulation.
The qualification separates a causal claim about money from an explanation of every price movement. Choosing a currency policy requires an additional judgment about its social effects. If governments nevertheless seek the old parity, Mises identifies the necessary means unequivocally:
Die Antwort auf diese Frage lautet: Man muß die Notenmenge vermindern.
English translation: The answer to this question runs: the quantity of notes must be reduced.
Contraction requires repayment of government debts to the Austro-Hungarian Bank through taxation or borrowing. Mises illustrates the mechanism through Austria’s financing of the 1859 war: central-bank loans expanded note circulation and raised commodity prices and the premium on metallic money. Subsequent repayment and restrictions on uncovered notes reduced circulation and brought the premium close to disappearance early in 1866, before renewed war interrupted the policy. The greater scale of the contemporary problem changes its political significance, not its causal character. Indeed, the contraction required might make stabilization preferable to restoration.
Mises accordingly distinguishes operations that withdraw notes from those that merely prevent further issuance. War-loan subscriptions do not automatically reduce circulation; they produce contraction when their proceeds retire bank debt. Borrowing from the public without central-bank accommodation can instead avert further expansion. The decisive operation is the return of notes to the issuing institution:
In jedem Falle müßten den Staatskassen Noten zuströmen und durch die Überführung dieser Noten in die Kassen der Österreichisch-ungarischen Bank müßte die Schuld der beiden Staaten getilgt werden.
English translation: In every case notes would have to flow into the state treasuries, and through the transfer of these notes into the coffers of the Austro-Hungarian Bank the debt of the two states would have to be discharged.
Attempts to maintain interest rates below the level warranted by economic conditions encourage inflation and currency deterioration. Yet monetary expansion is not the only source of rising prices: production and trade difficulties also matter. Policy therefore requires an assessment of distinct causes and consequences, not administrative slogans. Nor is the currency problem confined to Austria-Hungary; different states may choose restriction or stabilization.
Reply IV turns from financial mechanisms to the status of monetary reasoning. Mises accepts that thrift and increased production are necessary to repair war damage, but denies that this agreement settles the currency question. A businessman explaining depreciation is engaged in theory just as an academic is. Even coercive measures against speculation presuppose an account of why money loses value. The relevant contrast is therefore between competing causal explanations, not between theory and theory-free practice.
This distinction also informs his treatment of the controversy between inflationists and advocates of sound money. Both recognized that monetary expansion raises prices; they disagreed over the desirability of that result. Inflationists welcomed higher prices, while their opponents distinguished apparent prosperity from improvements grounded in saving and production. Agreement about a causal mechanism could thus coexist with opposed policy judgments.
Mises acknowledges that army treasuries, circulation in occupied territories, and hoarding increased wartime demand for money. He nevertheless argues that issuance exceeded what this additional demand could absorb without price increases. Against the claim that higher commodity prices automatically generate the circulation needed to transact at those prices, he stresses institutional agency: additional notes entered circulation because the bank law was suspended and issuance authorized. Asking what would have happened without that authorization exposes the missing causal step.
The concluding challenge links monetary explanation to public finance. Anyone denying that note expansion reduces purchasing power must explain why circulation should be restricted—or why governments should not finance all borrowing through cheap central-bank credit. The replies thus make fiscal operations central to currency policy while preserving the distinction between explanation and valuation: restoration has identifiable financial requirements and social costs, and opposition to inflation requires a coherent account of its effects.
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