Ludwig von Mises

It is the beginning of the ‘demonetization’ of the notes. The process is hastened by its panic-like character. It may be possible once, twice, perhaps even three or four times, to allay the fears of the public; but eventually the affair must run its course and then there is no longer any going back. Once the depreciation is proceeding so rapidly that sellers have to reckon with considerable losses even if they buy again as quickly as is possible, then the position of the currency is hopeless.

It is the beginning of the ‘demonetization’ of the notes. The process is hastened by its panic-like character. It may be possible once, twice, perhaps even three or four times, to allay the fears of the public; but eventually the affair must run its course and then there is no longer any going back. Once the depreciation is proceeding so rapidly that sellers have to reckon with considerable losses even if they buy again as quickly as is possible, then the position of the currency is hopeless.

– Ludwig von Mises –

The Theory of Money and Credit

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Ludwig von Mises

A government always finds itself obliged to resort to inflationary measures when it cannot negotiate loans and dare not levy taxes, because it has reason to fear that it will forfeit approval of the policy it is following if it reveals too soon the financial and general economic consequences of that policy. Thus inflation becomes the most important psychological resource of any economic policy whose consequences have to be concealed; and so in this sense it can be called an instrument of unpopular, i.e. of anti-democratic, policy, since by misleading public opinion it makes possible the continued existence of a system of government that would have no hope of the consent of the people if the circumstances were clearly laid before them. That is the political function of inflation. It explains why inflation has always been an important resource of policies of war and revolution and why we also find it in the service of socialism.

Ludwig von Mises

Let us assume that a man gets half his income in the form of interest-bearing securities and half in the form of money; and that he is in the habit of saving three-quarters of his income, and does this by retaining the securities and using that half of his income which he receives in cash in equal parts for paying for current consumption and for the purchase of further securities. Now let us assume that a variation in the composition of his income occurs, so that he receives three-quarters of it in cash and only one-quarter in securities. From now on this man will use two-thirds of his cash receipts for the purchase of interest-bearing securities. If the price of the securities rises or, which is the same thing, if their rate of interest falls, then in either case he will be less willing to buy and will reduce the sum of money that he would otherwise have employed for their purchase; he is likely to find that the advantage of a slightly increased reserve exceeds that which could be obtained from the acquisition of the securities. In the second case he will doubtless be inclined to pay a higher price, or more correctly, to purchase a greater quantity at the higher price, than in the first case. But he will certainly not be prepared to pay double as much for a unit of securities in the second case as in the first case.

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