On the Manipulation of Money and Credit. Людвиг фон Мизес

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СКАЧАТЬ demand and supply situation at the moment would indicate. Prices will be asked and paid which more nearly correspond to anticipated future conditions than to the present demand for, and quantity of, money in circulation.

      The frenzied purchases of customers who push and shove in the shops to get something, anything, race on ahead of this development; and so does the course of the panic on the Bourse where stock prices, which do not represent claims in fixed sums of money, and foreign exchange quotations are forced fitfully upward. The monetary units available at the moment are not sufficient to pay the prices which correspond to the anticipated future demand for, and quantity of, monetary units. So trade suffers from a shortage of notes. There are not enough monetary units [or notes] on hand to complete the business transactions agreed upon. The processes of the market, which bring total demand and supply into balance by shifting exchange ratios [prices], no longer function so as to bring about the exchange ratios which actually exist at the time between the available monetary units and other economic goods. This phenomenon could be clearly seen in Austria in the late fall of 1921.³ The settling of business transactions suffered seriously from the shortage of notes.

      Once conditions reach this stage, there is no possible way to avoid the undesired consequences. If the issue of notes is further increased, as many recommend, then things would only be made still worse. Since the panic would keep on developing, the disproportionality between the depreciation of the monetary unit and the quantity in circulation would become still more exaggerated. The shortage of notes for the completion of transactions is a phenomenon of advanced inflation. It is the other side of the frenzied purchases and prices; it is the other side of the “crack-up boom.”

3. Effect on Interest Rates

      Obviously, this shortage of monetary units should not be confused with what the businessman usually understands by a scarcity of money, accompanied by an increase in the interest rate for short-term investments. An inflation, whose end is not in sight, brings that about also. The old fallacy—long since refuted by David Hume and Adam Smith—to the effect that a scarcity of money, as defined in the businessman’s terminology, may be alleviated by increasing the quantity of money in circulation, is still shared by many people. Thus, one continues to hear astonishment expressed at the fact that a scarcity of money prevails in spite of the uninterrupted increase in the number of notes in circulation. However, the interest rate is then rising, not in spite of, but precisely on account of, the inflation.

      If a halt to the inflation is not anticipated, the money lender must take into consideration the fact that, when the borrower ultimately repays the sum of money borrowed, it will then represent less purchasing power than originally lent out. If the money lender had not granted credit but instead had used his money himself to buy commodities, stocks, or foreign exchange, he would have fared better. In that case, he would have either avoided loss altogether or suffered a lower loss. If he lends his money, it is the borrower who comes out well. If the borrower buys commodities with the borrowed money and sells them later, he has a surplus after repaying the borrowed sum. The credit transaction yields him a profit, a real profit, not an illusory, inflationary profit. Thus, it is easy to understand that, as long as the continuation of monetary depreciation is expected, the money lender demands, and the borrower is ready to pay, higher interest rates. Where trade or legal practices are antagonistic to an increase in the interest rate, the making of credit transactions is severely hampered. This explains the decline in savings among those groups of people for whom capital accumulation is possible only in the form of money deposits at banking institutions or through the purchase of securities at fixed interest rates.

4. The Run from Money

      The divorce of trade from a money that is proving increasingly useless begins with its being replaced from the hoards. If people want marketable goods available to meet unanticipated future needs, they start to accumulate other moneys—for instance, metallic (gold and silver) moneys, foreign notes, and occasionally also domestic notes which are valued more highly because their quantity cannot be increased by the government, such as the Romanov ruble of Russia or the “blue” money of Communist Hungary.⁴ Then too, for the same purpose, people begin to acquire metal bars, precious stones and pearls, even pictures, other art objects and postage stamps. An additional step in displacing a no-longer-useful money is the shift to making credit transactions in foreign currencies or metallic commodity money which, for all practical purposes, means only gold. Finally, if the use of domestic money comes to a halt even in commodity transactions, wages too must be paid in some other way than with pieces of paper with which transactions are no longer being made.

      Only the hopelessly confirmed statist can cherish the hope that a money, continually declining in value, may be maintained in use as money over the long run. That the German mark is still used as money today [January 1923] is due simply to the fact that the belief generally prevails that its progressive depreciation will soon stop, or perhaps even that its value per unit will once more improve. The moment that this opinion is recognized as untenable, the process of ousting paper notes from their position as money will begin. If the process can still be delayed somewhat, it can only denote another sudden shift of opinion as to the state of the mark’s future value. The phenomena described as frenzied purchases have given us some advance warning as to how the process will begin. It may be that we shall see it run its full course.

      Obviously the notes cannot be forced out of their position as the legal media of exchange, except by an act of law. Even if they become completely worthless, even if nothing at all could be purchased for a billion marks, obligations payable in marks could still be legally satisfied by the delivery of mark notes. This means simply that creditors, to whom marks are owed, are precisely those who will be hurt most by the collapse of the paper standard. As a result, it will become impossible to save the purchasing power of the mark from destruction.

5. Effect of Speculation

      Speculators actually provide the strongest support for the position of the notes as money. Yet, the current statist explanation maintains exactly the opposite. According to this doctrine, the unfavorable configuration of the quotation for German money since 1914 is attributed primarily, or at least in large part, to the destructive effect of speculation in anticipation of its decline in value. In fact, conditions were such that during the war, and later, considerable quantities of marks were absorbed abroad precisely because a future rally of the mark’s exchange rate was expected. If these sums had not been attracted abroad, they would necessarily have led to an even steeper rise in prices on the domestic market. It is apparent everywhere, or at least it was until recently, that even residents within the country anticipated a further reduction of prices. One hears again and again, or used to hear, that everything is so expensive now that all purchases, except those which cannot possibly be postponed, should be put off until later. Then again, on the other hand, it is said that the state of prices at the moment is especially favorable for selling. However, it cannot be disputed that this point of view is already on the verge of undergoing an abrupt change.

      Placing obstacles in the way of foreign exchange speculation, and making transactions in foreign exchange futures especially difficult, were detrimental to the formation of the exchange rate for notes. Still, not even speculative activity can help at the time when the opinion becomes general that no hope remains for stopping the progressive depreciation of the money. Then, even the optimists will retreat from German marks and Austrian crowns, part company with those who anticipate a rise and join with those who expect a decline. Once only one view prevails on the market, there can be no more exchanges based on differences of opinion.

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