Ludwig von Mises’s review article, originally published in September 1933 and reprinted in 1990, examines the London School of Economics reissue of Nassau William Senior’s lectures on money and international trade. Mises uses the occasion to defend the continuing explanatory force of classical monetary theory while addressing protectionism, exchange depreciation, and the banking crises of 1931. His central distinction is between altered economic circumstances and the mechanisms through which monetary adjustment operates.
The review places Senior’s arguments against the contemporary revival of restrictions on international exchange:
We are living in a world where trade barriers become more and more insurmountable.
For Mises, the persistence of protectionism raises a question about why arguments associated with Senior and Ricardo have failed to persuade policymakers. Modern advocates of restrictions emphasize exchange rates rather than the loss of circulating precious metals, but this change in vocabulary does not remove the underlying theoretical disagreement:
The problem is whether there is an automatic readjustment of the balance of payments or whether government is bound to interfere lest disastrous consequences follow.
Senior’s treatment emphasizes commodity trade; contemporary analysis must also account for international credit and interest rates. Mises regards this extension as especially important politically. Higher commodity prices visibly favor producers over consumers, whereas low interest rates command more general approval. Restrictions on imports can therefore gain support when presented as a means of maintaining cheap domestic credit. Yet capital imports lower interest rates in borrowing countries, and paper currency does not provide costless independence from international monetary conditions.
The decisive issue is whether exchange depreciation can be attributed to an unfavorable payments balance independently of domestic monetary policy. Mises states the point sharply:
What he does not wish to admit is that the exchange ratio does not ultimately depend on the balance of payments and that there is no danger of its being impaired so long as there is no over-issue of notes at home.
This reasoning also informs his interpretation of Britain’s abandonment of gold in 1931. Governments may prefer depreciation to the consequences of defending parity through higher interest rates, particularly when domestic prices and wages are at stake. Such a preference does not refute classical theory: Senior could have explained the policy even while rejecting its objectives. Mises separates the validity of an explanation from approval of the choices it explains.
The review nevertheless recognizes a consequential institutional change in international banking. Short-term foreign debts had financed assets that borrowing banks could not promptly realize. When creditors demanded repayment, the resulting liquidity crisis forced a choice between bank failure and government intervention. Mises interprets the continental exchange controls introduced in 1931 as substitutes for formal moratoria on payments.
His diagnosis turns on the distinction between savings deposits and deposits subject to cheque. Savings deposits finance investment and yield interest; cheque deposits serve as immediately available money. A savings bank creates a mismatch when it promises repayment on demand while committing funds for longer periods. Advance-notice requirements would better align withdrawals with the recovery of assets. Cheque deposits present a different reserve problem because immediate availability belongs to their monetary function.
Mises consequently challenges accounts that make capital flight itself the cause of monetary instability. Productive property cannot collectively leave a country, and sales generally transfer ownership rather than remove the underlying assets. The monetary danger arises when withdrawals are financed through newly created central-bank credit. His emphasis therefore falls on banks’ repayment commitments and their monetary accommodation, rather than simply on depositors’ desire to move funds abroad. Without extraordinary monetary assistance, imprudent banks would need to negotiate repayment schedules covering domestic as well as foreign creditors.
The review concludes by affirming Senior’s relevance without denying changes in value theory, banking institutions, or political priorities. Its distinctive contribution is to combine a defense of classical adjustment mechanisms with an institutional explanation of crisis: unstable maturity commitments and expansionary support for them, rather than international exchange as such, threaten monetary stability.
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