I might say a word about this morning's lecture, particularly, and that is it's a slightly
different format than the other lectures. There'll be no separate discussion sessions
following this, and we'll stay right in here for one session until lunchtime. And following
the lecture, there will be an opportunity to ask questions, but please, it's more convenient
if the questions are in written form. So as the question occurs to you during the lecture,
if you please write it down, I'll collect them afterward, and then we'll proceed with
Question and Answer period on that basis. It said, as you know, that behind every great man there is a great woman. Some of you had an opportunity a few minutes ago out of coffee to discover the other half of the Mises combination. We're pleased to have with us today Mrs. Mises along for moral support and her husband and also of course our speaker this morning, Professor
Ludwig von Mises, for many years now at New York University, before that a distinguished
academic career in Europe, first at the University of Vienna and subsequently at the Graduate
Center for International Studies in Geneva.
The Dean, of course, of the Austrian School of Economics, the author of Human Action and
many other works, our speaker this morning, originally, as you see from your schedule,
They plan to speak on property, but because of the tremendous interest centering in questions of money and inflation,
he'd asked me to announce that he would prefer to speak on another topic this morning,
one that I'm sure would be of particular interest, the problems of inflation.
And so, it's my very great pleasure to present to you, Professor Ludwig von Mises.
It is very fashionable today to make silly jokes about our monetary system and especially
about the problem of the gold standard.
There are authors who are writing essays, leave the world to the dentists.
Now the dentists are certainly interested in the world and other people too, but I would
like to attack the problem from the other end and say there is nothing in the world
less fit to serve as money than paper, printed paper, nothing is cheaper and practically
what we have to see is that the governments are destroying the whole economic system of
and Market Economy by destroying the monetary system.
Some years ago, you could read again and again quotations saying that Lenin said that the
The best method to destroy the free enterprise system would be to destroy the monetary system.
Now, Professor in Germany has demonstrated that Lenin never said this, but if he had
said it, it would have been the only correct thing that he ever said.
Now, what we have to realize is this.
Money is a market phenomenon.
That means money is a medium of exchange.
And in the course of the historical evolution, various commodities have been employed for
had the service of a medium of exchange until finally only two commodities remained, precious metals, silver and gold,
and then in the course of the 19th century also silver disappeared from its service as a medium of exchange and what remained was gold alone.
Now, the quality that makes gold fit for the service is precisely the fact that the quantity
The theory of gold cannot be manipulated by the government.
The quantity of money is the decisive problem.
And what the governments are doing is either to retain the character of gold as a medium
of Exchange, and to make it possible for people to operate such a standard, or, and this is
the reason that we have to deal with all these problems in such a way as we have to deal
with them today, or the government employ the monetary system for the destruction of
of the Money Economy.
If a government doesn't know what to do, it wants to bribe the people by paying something
to it.
Paying without having collected the means required for this payment by taxation.
And this means, this is what the governments are doing, this is inflation, you know.
If we hear today the governments talk about inflation, they describe inflation as something
that happens, one doesn't know why, or another version, that is due to the activities, to
the bad actions of the people.
Let us take the most popular case, the problem of foreign exchange.
We have today a situation in which the various governments in their inflationary measures
do not act in concert.
That means one government goes farther in its inflationary measures and the other government
does not go as far as these other governments.
and therefore there are continually changes in the mutual exchange ratios of the various
countries governmental money.
I want to, as the time is very limited for the interpretation of such a complicated problem,
The most important, practically today the most important problem.
I want to enter immediately into a criticism of the popular governmental doctrine of the
balance of payments according to the ideas of the government, the various governments
or let us also say of the American government as manifested in its plans and measures of
the last months.
The reason why the prices expressed in dollars are going up quicker than prices expressed
and some other currencies is due, of course, to you, to the people.
The people is responsible.
People are responsible because they are drinking champagne,
because they are traveling to foreign countries.
Why do they speak about champagne and about traveling in foreign countries?
Because these are, as the governments consider it, luxury things.
Therefore, what the government does is simply say, look at these bad people who are drinking champagne.
They are responsible for the inflation, for the higher prices.
They are responsible for all evils under the sun.
What the government does not say is that these people,
if they are prevented from drinking champagne
and, therefore, sending money to France,
would spend for something else.
They would either invest this money or they would spend this money for consumption.
They would not take the dollars which they are using today according to the ideas of the government for drinking champagne.
They will not put these dollars into a package and send this package to the government
Incentive here have more money for paying the deficits of your enterprises of the post office for instance and so on.
They would buy something else.
If they are buying something else on the domestic market, the prices of these things would go up on account of the fact that there is now a greater demand for it.
And these things would become less available, less fit for exporting.
Therefore, if you prevent people from spending the money abroad,
then they will spend the money on the domestic market, either for consumption or for investment.
But whatever they are doing, they will bring about higher prices for some things which previously were exported.
And these things will no longer be exported.
If the governments were consistent in their ideas, they would make all impacts impossible.
and what will the people do with the money?
They will buy more on the domestic market.
They will bring about higher prices on the domestic market,
either of consumer's goods or of producer's goods.
There is no such group of commodities.
and they would restrict exports to the same extent that they are important imports, necessarily.
If the governments were consequent and could be consistent in this regard, they would prevent
Every business with foreign countries, then every country will remain isolated economically
and prices will go up on account of the fact that the government increases the quantity
of domestic money.
If this is done in a consistent way, it would bring about a restriction, complete end of
international trade.
The way in which the American government deals with the problem is only one of the ways in
which the government justifies the action.
This is the way of the luxury excuse, but there is a second way for countries in which
The imports consist predominantly of goods that are considered as necessary and indispensable
by public opinion.
In such countries, for instance, these countries are all those European countries that are
are predominantly industrial, exporting industrial products, manufactures, in order to import
food and raw materials.
In such countries they say what is responsible for our unfavorable development of foreign
and Exchange Rate is the fact that we are poor insofar as we cannot produce on our own territory
all the foodstuffs and raw materials we need and have to import them.
These other nations, the heavy nations, are exploiting us.
This is the version which, for instance, was used by Mussolini in order to justify his aggression.
Why must we go to war against other countries?
Because we are forced to import things which are absolutely necessary for the support of
the life and health and so on of our population.
You see, the result of all these policies would be more and more self-sufficiency or to use
a foreign word, a Greek word, which is mostly pronounced in the wrong way outside of Greece,
Autarky, autarkic, I mention this word because you will find it very often used in all articles
and books dealing with these problems.
Now why is this bad, can this bad situation only develop between national units and not
within the national unit?
In Europe, there are several governments of several nations, the population of which is
either smaller or not much larger than the population of many American states.
Why don't you hear the same complaints which you hear about, let us say, the comportment
of some people who are buying champagne and are therefore enriching France and impoverishing
of the United States, why don't you hear the same thing about the various American states?
Because the various states of the Union have no independent monetary policy, can therefore
You must not make an inflation in Iowa that is not at the same time and to the same extent
also an inflation in 49 other states of the Union.
And you must not go to the states.
When you say, when people say what is bad interrelation between the United States and
France is, is that France produces and sells to the United States only goods which are
very frivolous, very bad goods, immoral goods, books, novels, theatrical performance in Paris,
opera production and concerts in Paris, and champagne, you know, which is the worst of
all these things.
You could say the same thing also between, let us say, Brooklyn and Manhattan.
Manhattan sells theatrical performances, concerts and so on in a greater number to the people from Brooklyn.
These people of Brooklyn are spending, this other man in Brooklyn says,
why does my neighbor spend his money to attend the performance of an opera in Manhattan?
Why does he not spend his money in Brooklyn?
And if you go step by step farther in the same direction,
To arrive to perfect autarky, self-sufficiency, isolation, economic isolation of every individual
family and perhaps even within the family, one could say, why should not a boy say against
his brother or sister or against his parents, I want to be autarkic, for the same reasons
consequently and consistently developed for which one of the countries in the world wants
to be autarkic and prevents the importation of things from other countries.
It is one of the many things, of the many contradictions which we have in our not economic
system, in our political system.
The dreadful contradiction that, for instance, only to refer to one point in order to explain
you what I have in mind, dreadful contradiction that, for instance, the American government
says we have to wage war against poverty, so many people are poor and we must make them
and this government taxes the people in order to make bread more expensive.
And you will say also bread more expensive, this is an exception, it's not an exception,
because the American government spends also billions of tax money in order to make cotton
more expensive.
Cotton goods, cotton goods are certainly, or they were in the past, cotton goods are
are certainly not luxury goods, they are perhaps luxury goods when compared with bread, but
with bread the government makes the same policy.
But we must not refer to this point.
The thing is that the individual cannot do anything that makes the inflationary machine
and mechanism work.
This is done by the government.
The government makes the inflation.
If the government complains about the fact that prices are going up and appoints committees
of learned men to fight against inflation, we have only to say, nobody else, then the
government brings about inflation.
If the government wants to spend, the government has two ways that do not make inflation, that
do not destroy the monetary system and the market organization.
It can tax the citizens, you know what this means, or it can borrow from somebody who
has the money, you know, but if the government prints simply the money, increases the quantity
Or borrows from the commercial banks by forcing them to credit the government on checking
accounts.
Then there is a greater quantity of money available and available in an environment,
in a milieu in which the quantity of goods and services did not increase.
On the one hand, the government increases the quantity of money, on the other hand, the
government has not the power to increase the quantity of goods.
And the result is that the exchange ratio is changed, and the result is higher prices,
and the government says higher prices, look these people, look this corporation, this
bad man, the president of this corporation, even if the government, I don't want to talk
about the unions, but also if the government blames the unions, we have to realize what
the unions cannot do is to increase the quantity of money, and therefore all the activities
of the unions are within the frame that is built by the government in influencing the
If the government issues additional money for a wonderful purpose, let us say, the government
wants, for instance, let us say, to make it possible for everybody to spend some time in
in Paris Drinking Champagne, and the French are nice enough to say, we will take your
American paper dollars.
What will the result be?
There will be on the market a higher quantity of this American money and this higher quantity
The Theory of Money will necessarily bring about a change in the exchange ratio between
the various goods and services on the one hand and the monetary unit on the other hand.
This is the problem which we have to take into account.
And now the government says, or let us say, it's not the government, it is the servants
of the government, they say, yes, who is against this increase in the quantity of money?
Who is it, the rich people, who are doing something very useful, necessary and beneficial for the masses?
Why? Because if the quantity of money increases and therefore the purchasing power of the monetary unit,
The popularly called in this country the dollar decreases, this means that the burden of debt becomes easier, that the poor debtors are favored at the expense of the rich creditors.
Wonderful idea.
And it was what the government says, what the American government says in this direction
or some people say, it was perfectly correct 2,500 years ago in the city of Athens when
The wise man Solon had to deal with some problems which we in our language, which we use today, would call social problems.
At that time, the debtor was typically the poor man, and the creditor was the rich man.
If these people said, if Salerno said, I have made a reform in favor of the poor, straighter of the population and for the benefit and at the expense of the richer groups, he was perfectly right.
So there were many reformers in later ages, you know.
But under capitalistic conditions, it is very different.
In the pre-capitalistic ages, people who were creditors were rich people.
And you could say that the debtor is a poor man.
But we do no longer live in the days of Solon of Athens, unfortunately some people may say,
and we do no longer live under the conditions in which the authors in the Middle Ages
and in the 16th and 17th century dealt with these problems.
Capitalism has enriched the masses, not all of them, of course, because capitalism has
still to fight with the hostility of the governments, but under capitalistic conditions, it is no
It is no longer true that the creditors are the rich and the debtors are the poor.
Capitalism has developed a great system of making possible for the masses of the poorest
rate of the population, that means of the people who have less.
I don't want to say that they are poor in the sense in which one uses the term, I want
only to say they are poorer than the rich people, than the entrepreneurs and so on.
And capitalism has developed a system in which these people are in a position to save and
to invest indirect savings in the operation of business.
The rich people are owners, for instance, of common stock of a corporation.
But the corporations owe money either because they have issued bonds, corporate bonds, or
because they have a current connection with a bank in employing and the conduct of their
and their first money lent to them by the banks.
And the banks have this money from the savings account of simple citizens.
The masses, the great people, whom we call less wealthy than the richer people, have
have invested their savings in savings deposits and wants in insurance policies and so on.
And they are therefore creditors, while the great millionaires, the owners of real estate,
The owners of common stock and so on are, in this regard, debtors.
And if you do something, as all the governments practically do, if you do something against
The purchasing power of the monetary unit, you are hurting today under present-day conditions.
Not the rich, but you are hurting the middle classes and the masses of people who are saving
Therefore, one of the greatest changes brought about by capitalism is precisely this, the
The part that the less fortunate, I don't want to use the term the poorest, the less fortunate groups of the population at all, have, is legally, in the sense in which we are talking about creditors and debtors,
have an activity of the masses.
And if the government, and if there are certain smaller exceptions.
And one of the exceptions in this country is precisely the fact that the government
gives special privileges to the rich in order to attract them to the market of government
bonds.
Government bonds are to some extent tax-free, it is a very complicated system but it is
One could call it simply a system, they have privileges in the way of taxes in order to
make also the wealthier state of the population to be interested in buying government bonds
and in this way to make it possible for the government to spend more.
But if the government, by and large, we have to say, the much greater part of the privileges
of the benefits, under quotation marks, benefits, which the people derive from the inflationary
Policy does not go to the masses but on the contrary is paid by the masses.
That means, to give you an example, I don't want to refer to Germany because the German
And inflation was really so excessive and so crazy, and so done without any idea of economic wisdom,
that I don't want to talk about it at all.
But take France. Not so long ago, the French government had to declare what we call today 100 francs is from tomorrow on only one franc, you know, and this was not the first time that they did it and it was not the last time.
It means that the French government has deprived the great number of middle class and lower
class Frenchmen of their savings.
The interest, everything that is done by a government against the purchasing power of
the monetary unit is under present-day conditions done against the middle classes and the working
classes of the population, only that these people don't know it, and this is a tragedy.
The tragedy is that the unions and all these peoples are supporting a policy that makes
all these savings valueless.
And this is the great danger of the whole situation.
that people are destroying the purchasing power of the monetary unit is not only to be seen
and to be judged and appreciated from the point of view of what is done to current incomes
Consumptions and Current Consumption Habits, it has to be seen also from the point of view
of the accumulation of reserves and of private ownership by the masses.
That such movements as the revolutionary movements in various European countries developed was
due to the fact that one day the people had to discover that what they have saved to all
in order to improve the conditions of the members of their families, in order to improve
the conditions of their children and grandchildren, that all this has disappeared, entirely disappeared
by the monetary policy which the governments had adopted.
I say entirely disappeared because, take this French example which I mentioned, 100 francs
are only one franc today, that means if it had been the only time that this was done
in France, it was done several times, I can't enter into the whole history of this, but
It means that nothing is left because the number of people who could consider as something
valuable, one percent of their life savings is very small, practically non-existent.
Therefore, what the individual American has to realize if he deals with these problems
is that a policy of inflation, a policy which reduces the purchasing power of the monetary
of the Unit makes it impossible for him to organize his working, earning, and spending
and saving in such a way that he could provide for the future of his family.
This is why inflationary policy is the most radical revolutionary institution in the world.
We have to realize this and we have to change the opinion of the people who believe that
But the problem of the gold standard means something that concerns only groups of business,
small groups of the people and so on.
If we want to have a system in which the individual can plan for his own life and for the life
If we want to have a system in which people can say, if I have the opportunity to work
and to save, I will improve my own conditions and the conditions of my family.
Then you can have a regular system of what one used to call bourgeois security ones.
But if the governments destroy again and again the savings of their citizens, they bring
about a situation in which people do what these people in the various communist countries
and in which you think, in which you hear of violence and actions of destruction again
and again.
You have to realize that there are no miracles possible for government, that the government
is not in a position to spend something that it didn't previously collect from its citizens.
And in order to avoid the visible collection, the governments prefer invisible collection.
And then they say, you see, you never had it so good as you have today, right?
Because when you are looking backward at the end of the year, on the past year, you say
now my income increased by several percents.
Why did it increase?
Because the government, it's very modest the government, the government says not because
we printed the money, the government says because everything is so wonderful when we
are dealing with these systems.
And therefore all these, if you read in the newspapers these wonderful stories about paper
gold, nobody knows what paper gold is, you know, there are paper cigarettes, but paper
The goal is something which the government promises, perhaps, but there is no thing that can really achieve these things.
And then I want to add something which is also very important to realize.
There is no way of increasing the quantity of money, although decreasing, but nobody
talks of decreasing openly, they only do it.
There is no way of increasing the quantity of money in a neutral way.
It means, money can never be neutral.
If the government says, and this is one of the great mistakes that are very popular,
people say as conditions are improving, one needs more and more money.
One doesn't need more and more money.
And if one increases the money, one can never increase the quantity of money in a neutral
way.
That means in a way that does not further the economic conditions of one group at the
expense of other groups.
This is, for instance, something which this great, I don't find a nice word to describe
it, let us say this great error in starting the International Monetary Fund didn't realize.
Even this dreadful ignoramus who was called Lord Cain had not the slightest idea of it,
The idea is this, if there is an international bank issuing a world money for all countries,
and now they say we want to increase the quantity of money.
Because, they say, because there are now more people born.
All right.
Give it to them.
Then, the question is, who gets the additional money?
And the same is true for the problem
if there are lots of books of so-called economists
who are publishing textbooks,
and in every edition of the textbook,
In every new edition, they give another figure for the yearly increase of the quantity of money.
For us, we said 8%, 6%, 5%.
This is useless to know.
The thing is that the question would always be, to whom give you this additional quantity?
Because if the additional quantity is given to somebody else, your conditions are impaired.
Let us say this, the idea of the international bank again and again was, there are poor countries in the world.
Yes, there are. Give them additional money.
This additional money means that somebody has the power to buy more than he bought yesterday.
And this brings prices going up.
This means that those people who didn't get the additional money are now not only in the same situation they were yesterday,
this wouldn't be, no, they are now in a poorer position, they are worse because their quantity of money in their pockets did not increase,
But prices did increase, you know.
This is the problem that people never understood.
If you take, for instance, such an American textbook says,
and forget about the rest of the world,
They take only America, isolated from the whole world.
They say they need every year more money.
We will give them more money.
All right. But to whom?
No.
Those people who are getting, who are first getting the money,
that is certainly to the government, you will say, yes.
But the people who are the first to receive the money from the government,
because the government buys these things, because the government, let us say, says we will give to all people of a certain quality, a certain quantity of money.
They are now in a position to buy more.
Their competition on the market raises prices and you are here and you did not get anything
from traditional money.
You are there for hard-paid, you know.
This does not mean simply as these people, if you read these books, if you take this
It can distribute more money, but it cannot distribute more goods, and this is the question.
As this additional money will raise the prices of wood, you who did not get anything of this
This additional money, you are out.
And this is what people don't realize and they don't see.
And therefore, this money that is increased every year means only that other groups will
then say, why did we not get more than the government gives them to a quantity?
and then against the others and this is what we are getting today, you know.
This is the present day situation in most of the countries.
There is one group that wants to get something, the government gives them and the other groups
may also demand and in this way the purchasing power of the monetary unit is continually dropping.
This means that the debts are getting smaller.
But the debts are precisely the riches of the masses.
The process, debts are getting smaller means that the owners of common stock are getting
richer at the expense of those who have bought corporate bonds and so on.
I would say therefore to the government, there are among the government people some who really believe in this thing, that they should study the problem.
They should study the problem because there is no such thing as a neutral money.
There is no neutrality on the market because the situation of the various people is different.
Because every group is in another situation and if you do something for the benefit of one group,
you must ask yourself that the printing press cannot make people richer.
The government prints money and gives it to one group of the people and makes them richer.
Yes, at the expense, necessarily at the expense of other people, you know.
And this is the thing that people do not realize when they are talking about these various plans, you know.
It's unbelievable that we have now already for a long time, for many years already, textbooks that from time to time say,
that in every new edition say that the quantity of money must increase, but this 2 percent
or 5 percent or 7 percent, they change it from year to year.
This is without any importance, but the question is they do not see that the increase in the
quantity of money, that inflation does not at the same time and to the same extent affect
the wealth and the income of various groups of the population, that money therefore necessarily
cannot be neutral and therefore we must be very modest in planning new monetary ideas.
In a time of inflation, in a time of monetary troubles, it is a very popular pastime for
certain people to make plans for an ideal money, but there is no ideal money, and the
The money which will have as gold standard money has the advantage that its changes are
very slowly and are completely within the system of the monetary organization.
Thank you very much.
Thank you, Professor Mises. Now we have time for several people to go to lunch.
about inflation, because deflation is unpopular enough also without any observations which I may add to it.
To give you an, let us say, not very scientific but rather correct interpretation,
In interpretation, I would say, some people believe that the cure of inflation is deflation.
And some people believe, but there are very few, that if a man was hurt by a motor car,
then the cure is to let the motor car go over him in the opposite direction.
What do you suggest as a means of settling temporary balance of payment situations?
Do we continue using gold at the present price?
I want to say, gold, what I said at the beginning, gold has one virtue, that it cannot be printed.
And whatever you can say, you cannot prevent governments from using the printing press if
they are, if their period in office, the length of their period in office depends on it.
However you may say, even if one were to say that capital punishment has to be resorted
to and so on, this wouldn't make any change.
But it is impossible to fabricate gold.
Perhaps one day people, science will discover a method to produce gold in the same way in
which we tend to produce today these paper things which we call money.
Then people will have to find something else.
If we don't know what the situation, if this can happen, what the situation will be, and
therefore we can't make plans for such an event.
But today we have this situation and we must not abandon it for some reasons in order to
What part has a massive expansion of credit played in the prosperity of our present economy?
Would the economy have expanded at its present rate without the modern credit economy?
The second question.
What the expansion of credit means and what it brings about has been described by a doctrine
which is very unpopular with the governments and with the bankers, but that describes it
precisely.
The trade cycle, the business cycle, and the end of the trade and business cycle, the depression,
are the effects of the attempt of various governments again and again to improve conditions
Expansion. The details can be read in some books. I recommend you especially the book
by Dr. Rothbard. I think the title is America's Great Depression.
There are a number of these. I'm sorting through. Some of these, of course, repeat one another. I'm trying to avoid some of those.
We'll try another one here.
You say that the government, increasing the amount of money in circulation, really helps no one.
If the money is distributed to people with no money before this new distribution, are not they in a better economic position?
If the money is distributed to people with no money before this new distribution, I'm
not denying that economic position.
You cannot by increasing the quantity of money avoid effect upon production.
And this is what brings about this thing.
I want to say, you know, we could, one should not talk about money in the way in which I
have talked today.
That means one should say to an audience, if you want to hear something about money,
then you must, I am prepared to talk to you about money.
But let us say two weeks every day of two weeks, this is 14 days, four hours a day, 56 hours,
and then two hours every day for you to ask questions, which I will answer.
In one hour you can't deal with this problem, which is possible to deal with the problem
of Money in one hour and put the other problems of the economy in five or six hours or eight
hours, I don't know how much the seminar has, then the world would be very simple.
Unfortunately, the world is not as simple as that.
and we must try to make these things as clear as possible.
I want what I consider as very important under present conditions is to tell people that it
It is impossible to improve conditions by inflation, while inflation is something that
can only destroy and not produce something.
And secondly, that inflation is something that is always done by the government alone,
It is useless, what people are believing today is that if a corporation or an individual raises
Prices, this is inflation, this is not inflation, and an individual cannot do this if there
is no conditions.
If a man asks a higher price than the potential market price, then the result is that he does
not sell anything.
The inflation consists not in the fact that prices are going up, but it consists in the
The fact that the quantity of money is increased and therefore a greater quantity of money chases,
as people sometimes say, a not increased quantity of goods.