The Theory of Money and Credit
By Ludwig Mises
Ludwig von Mises (1881-1973) first published
The Theory of Money and Credit in German, in 1912. The edition presented here is that published by Liberty Fund in 1980, which was translated from the German by H. E. Batson originally in 1934, with additions in 1953. Only a few corrections of obvious typos were made for this website edition. One character substitution has been made: the ordinary character “C” has been substituted for the “checked C” in the name Cuhel.
H. E. Batson, trans.
First Pub. Date
Indianapolis, IN: Liberty Fund, Inc. Liberty Classics
First published in German. Foreword by Murray Rothbard and Introduction by Lionel Robbins not available online
The text of this edition is under copyright. Picture of Ludwig von Mises: file photo, Liberty Fund, Inc.
- Historical Prefaces
- Part I,Ch.1
- Part I,Ch.2
- Part I,Ch.3
- Part I,Ch.4
- Part I,Ch.5
- Part I,Ch.6
- Part II,Ch.7
- Part II,Ch.8
- Part II,Ch.9
- Part II,Ch.10
- Part II,Ch.11
- Part II,Ch.12
- Part II,Ch.13
- Part II,Ch.14
- Part III,Ch.15
- Part III,Ch.16
- Part III,Ch.17
- Part III,Ch.18
- Part III,Ch.19
- Part III,Ch.20
- Part IV,Ch.21
- Part IV,Ch.22
- Part IV,Ch.23
- Appendix A
- Appendix B
1 Money in the Socialist Community
The Enemies of Money
It has been shown that under certain conditions, which occur the more frequently as division of labor and the differentiation of wants are extended, indirect exchange becomes inevitable; and that the evolution of indirect exchange gradually leads to the employment of a few particular commodities, or even one commodity only, as a common medium of exchange. When there is no exchange of any sort, and hence no indirect exchange, the use of media of exchange naturally remains unknown. This was the situation when the isolated household was the typical economic unit, and this, according to socialist aspirations, is what it will be again one day in that purely socialistic order where production and distribution are to be systematically regulated by a central body. This vision of the future socialistic system has not been described in detail by its prophets; and, in fact, it is not the same vision which they all see. There are some among them who allow a certain scope for exchange of economic goods and services, and so far as this is the case the continued use of money remains possible.
On the other hand, the certificates or orders that the organized society would distribute to its members cannot be regarded as money. Supposing that a receipt was given, say, to each laborer for each hour’s labor, and that the social income, so far as it was not employed for the satisfaction of collective needs or the support of those not able to work, was distributed in proportion to the number of receipts in the possession of each individual, so that each receipt represented a claim to an aliquot part of the total amount of goods to be distributed. Then the significance of any particular receipt as a means of satisfying the wants of an individual, in other words its value, would vary in proportion to the size of the total dividend. If, with the same number of hours of labor, the income of the society in a given year was only half as big as in the previous year, then the value of each receipt would likewise be halved.
The case of money is different. A decrease of fifty percent in the real social income would certainly involve a reduction in the purchasing power of money. But this reduction in the value of money need not bear any direct relation to the decrease in the size of the income. It might accidentally happen that the purchasing power of money was exactly halved also; but it need not happen so. This difference is of fundamental importance.
In fact, the exchange value of money is determined in a totally different way from that of a certificate or warrant. Titles like these are not susceptible of an independent process of valuation at all. If it is certain that a warrant or order will always be honored on demand, then its value will be equal to that of the goods to which it refers. If this certainty is not absolute, the value of the warrant will be correspondingly less.
If we suppose that a system of exchange might be developed even in a socialist society—not merely the exchange of labor certificates but, say, the exchange of consumption goods between individuals—then we may conceive of a place for the function of money even within the framework of such a society. This money would not be so frequently and variously employed as in an economic order based on private ownership of the means of production, but its use would be governed by the same fundamental principles.
These considerations dictate the attitude toward money that must be assumed by any attempt to construct an imaginary social order, if self-contradiction is to be avoided. So long as such a scheme completely excludes the free exchange of goods and services, then it follows logically that it has no need for money; but so far as any sort of exchange at all is allowed, it seems that indirect exchange achieved by means of a common medium of exchange must be permitted also.
2 Money Cranks
Superficial critics of the capitalistic economic system are in the habit of directing their attacks principally against money. They are willing to permit the continuance of private ownership of the means of production and consequently, given the present stage of division of labor, of free exchange of goods also; and yet they want this exchange to be achieved without any medium, or at least without a
common medium, or money. They obviously regard the use of money as harmful and hope to overcome all social evils by eliminating it. Their doctrine is derived from notions that have always been extraordinarily popular in lay circles during periods in which the use of money has been increasing.
All the processes of our economic life appear in a monetary guise; and those who do not see beneath the surface of things are only aware of monetary phenomena and remain unconscious of deeper relationships. Money is regarded as the cause of theft and murder, of deception and betrayal. Money is blamed when the prostitute sells her body and when the bribed judge perverts the law. It is money against which the moralist declaims when he wishes to oppose excessive materialism. Significantly enough avarice is called the love of money; and all evil is attributed to it.
The confused and vague nature of such notions as these is obvious. It is not so clear whether it is thought that a return to direct exchange by itself will be able to overcome all the disadvantages of the use of money, or whether it is thought that other reforms will be necessary as well. The world makers and world improvers responsible for these notions feel no obligation to follow up their ideas inexorably to their final consequences. They prefer to call a halt at the point where the difficulties of the problem are just beginning. And this, incidentally, accounts for the longevity of their doctrines; so long as they remain nebulous, they offer nothing for criticism to seize upon.
Even less worthy of serious attention are those schemes of social reform which, while not condemning the use of money in general, object to the use of gold and silver In fact, such hostility to the precious metals has something very childish in it. When Thomas More, for example, endows the criminals in his utopia with golden chains and the ordinary citizens with gold and silver chamber pots,
*61 it is in something of the spirit that leads primitive mankind to wreak vengeance on lifeless images and symbols.
It is hardly worthwhile to devote even a moment to such fantastic suggestions, which have never been taken seriously. All the criticism of them that was necessary has been completed long ago.
*62 But one point, which usually escapes notice, must be emphasized.
Among the many confused enemies of money there is one group that fights with other theoretical weapons than those used by its usual associates. These enemies of money take their arguments from the prevailing theory of banking and propose to cure all human ills by means of an “elastic credit system, automatically adapted to the need for currency.” It will surprise no one acquainted with the unsatisfactory state of banking theory to find that scientific criticism has not dealt with such proposals as it should have done, and that it has in fact been incapable of doing so. The rejection of schemes such as Ernest Solvay’s “social comptabilism”
*63 is to be attributed solely to the practical man’s timidity and not to any strict proof of the weaknesses of the schemes, which has indeed not been forthcoming. All the banking theorists whose views are derived from the system of Tooke and Fullarton (and this includes nearly all present-day writers) are helpless with regard to Solvay’s theory and others of the same kind. They would like to condemn them, since their own feelings as well as the trustworthy judgments of practical men warn them against the airy speculations of reformers of this type; but they have no arguments against a system which, in the last analysis, involves nothing but the consistent application of their own theories.
The third part of this book is devoted exclusively to problems of the banking system. There the theory of the elasticity of credit is subjected to a detailed investigation, the results of which perhaps render any further discussion of this kind of doctrine unnecessary.
Staatliche Theorie des Geldes (3d. ed., 1921); trans. into English by H. M. Lucas and J. Bonar as
The State Théory of Money (London, 1924).
Das Geld, 6th ed. (Leipzig, 1923), p. 294; English trans.,
Money (London, 1927), p. 312.
Die Reform des deutschen Geldwesens nach der Gründung des Reiches (Leipzig, 1898), vol. 1, pp. 307 ff; Lotz,
Geschichte und Kritik des deutschen Bankgesetzes vom 14. März 1875 (Leipzig, 1888), pp. 137 ff.
Essai sur la nature du papier monnaie (Paris, 1909), pp. 5 ff.
Grundsätze der Volkswirtschaftslehre, 2d ed. (Vienna, 1923), pp. 20 ff.; Wieser,
Über den Ursprung und die Hauptgesetze des wirtschaftlichen Wertes (Vienna, 1884), pp. 42 ff.
System der Volkswirtschaft, ed. Pöhlmann, 24th ed. (Stuttgart, 1906), vol. 1, p. 123.
Geld und Kredit, 2d ed. (Berlin, 1885), vol. 1, pp. 20 ff.
Das Geld, 6th ed. (Leipzig, 1923), pp. 264 f.;
Money (London, 1924),
Grundriss der politischen Ökonomie 1st-3d eds. (Tübingen, 1907), vol. 2; Wagner,
Theoretische Sozialökonomik (Leipzig, 1909), vol. 2, Part 2 p. 1.
Dictionary, vol. 12, published in 1891, contains no mention of the meaning relating to transportation.
Principles of Political Economy (London, 1867), p. 16; Böhm-Bawerk,
Kapital und Kapitalzins, pp. 10 ff.
Über den Ursprung und die Hauptgesetze des wirtschaftlichen Wertes, p. 47. See also Böhm-Bawerk,
op. cit., pp. 131 f.; Clark,
The Distribution of Wealth (New York, 1908), p. 11.
op. cit., Part II pp. 131 ff. See also, on the historical aspect, Jacoby,
Der Streit um den Kapitalsbegriff (Jena, 1908), pp. 90 ff; Spiethoff, “Die Lehre vom Kapital,”
Schmoller-Festschrift Die Entwicklung der deutschen Volkswirtschaftslehre im 19. Jahrhundert (Leipzig, 1908), vol. 4, p. 26.
op. cit., pp. 59 f.
op. cit., p. 125 n.
Rechte und Verhältnisse, pp. 36 ff.
The Wealth of Nations, Cannan’s ed. (London, 1930).
Kapital und Kapitalzins, pp. 54 f.
Kapital und Kapitalzins, Part I, pp. 16 ff., Part II, pp. 23 ff.
Die Nationalökonomie der Gegenwart und Zunkunft (Frankfurt, 1848), pp. 118 ff.; Roscher,
System der Volkswirtschaft, ed. Pöhlmann, 24th ed. (Stuttgart, 1906), vol. 1, pp. 345 f.; Marx,
Das Kapital, 7th ed. (Hamburg, 1914), vol. 1, pp. 95 f. n.
Zur Kritik der politischen Ökonomie, ed. Kautsky (Stuttgart, 1897), pp. 70 if.; Knies,
Geld und Kredit, 2d ed. (Berlin, 1885), vol. 1, pp. 239 ff.; Aucuy,
Les systèmes socialistes d’Éxchange (Paris, 1908), pp. 114 ff.
La monnaie et le Compte, and also his
Gesellschaftlicher Comptabilismus (Brussels, 1897). Solvay’s theories also contain various other fundamental errors.