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On the Manipulation of Money and Credit

Three Treatises on Trade-Cycle Theory

Ludwig von Mises

Publication Year: 2012

Published by: Liberty Fund

Title Page, Copyright

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pp. v-vi


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pp. vii-xii

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pp. xiii-xv

This book is a collection of papers written by Mises during the 1920s and 1930s on money and the boom/bust trade cycle, the field in which one finds perhaps Mises’s greatest contribution to economics. The papers included in this volume were first published in English with other materials by Free Market Books in 1978 and were reprinted later by the ...

Stabilization of the Monetary Unit—From the Viewpoint of Theory

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pp. 3-4

Attempts to stabilize the value of the monetary unit strongly influence the monetary policy of almost every nation today. They must not be confused with earlier endeavors to create a monetary unit whose exchange value would not be affected by changes from the money side. In those olden and happier times, the concern was with how to bring ...

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I. The Outcome of Inflation

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pp. 5-14

If the practice persists of covering government deficits with the issue of notes, then the day will come without fail, sooner or later, when the monetary systems of those nations pursuing this course will break down completely. The purchasing power of the monetary unit will decline more and more, until finally it disappears completely. To be sure, ...

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II. The Emancipation of Monetary Value from the Influence of Government

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pp. 15-18

The first condition of any monetary reform is to halt the printing presses. Germany must refrain from financing government deficits by issuing notes, directly or indirectly. The Reichsbank [Germany’s central bank from 187five.old style until shortly after World War II] must not further expand its notes in circulation. Reichsbank deposits should be opened ...

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III. The Return to Gold

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pp. 19-21

In the years preceding and during the war, the authors who prepared the way for the present monetary chaos were eager to sever the connection between the monetary standard and gold. So, in place of a standard based directly on gold, it was proposed to develop a standard which would promise no more than a constant exchange ratio in ...

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IV. The Money Relation

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pp. 22-25

No one can any longer maintain seriously that the rate of exchange for the German paper mark could be reestablished [in 1923] at its old gold value—as specified by the legislation of December 4, 1871, and by the coinage law of July 9, 1873. Yet many still resist the proposal to stabilize the gold value of the mark at the currently low rate. Rather vague ...

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V. Comments on the “Balance of Payments” Doctrine

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pp. 26-31

The generally accepted doctrine maintains that the establishment of sound relationships among currencies is possible only with a “favorable balance of payments.” According to this view, a country with an “unfavorable balance of payments” cannot maintain the stability of its monetary value. In this case, the deterioration in the rate of exchange ...

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VI. The Inflationist Argument

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pp. 32-38

Nowadays, the thesis is maintained that sound monetary relationships may certainly be worth striving for, but public policy is said to have other higher and more important goals. As serious an evil as inflation is, it is not considered the most serious. If it is a choice of protecting the homeland from enemies, feeding the starving and keeping the country ...

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VII. The New Monetary System

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pp. 39-42

The bedrock and cornerstone of the provisional new monetary system must be the absolute prohibition of the issue of any additional notes not completely covered by gold. The maximum limit for German notes in circulation [not completely covered by gold] will be the sum of the banknotes, Loan Bureau Notes (Darlehenskassenscheinen), emergency currency ...

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VIII. The Ideological Meaning of Reform

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pp. 43-44

The purely materialistic doctrine now used to explain every event looks on monetary depreciation as a phenomenon brought about by certain “material” causes. Attempts are made to counteract these imagined causes by various monetary techniques. People ignore, perhaps knowingly, that the roots of monetary depreciation are ideological in ...

Appendix: Balance of Payments and Foreign Exchange Rates

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pp. 45-50

Monetary Stabilization and Cyclical Policy

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pp. 53-56

In recent years the problems of monetary and banking policy have been approached more and more with a view to both stabilizing the value of the monetary unit and eliminating fluctuations in the economy. Thanks to serious attempts at explaining and publicizing these most difficult economic problems, they have become familiar to almost ...

Part I. Stabilization of the Purchasing Power of the Monetary Unit

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p. 57-57

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I. The Problem

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pp. 59-61

Gold and silver had already served mankind for thousands of years as generally accepted media of exchange—that is, as money—before there was any clear idea of the formation of the exchange relationship between these metals and consumers’ goods, i.e., before there was an understanding as to how money prices for goods and services are ...

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II. The Gold Standard

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pp. 62-68

Under the gold standard, the formation of the value of the monetary unit is not directly subject to the action of the government. The production of gold is free and responds only to the opportunity for profit. All gold not introduced into trade for consumption or for some other purpose flows into the economy as money, either as coins in circulation ...

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III. The “Manipulation” of the Gold Standard

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pp. 69-72

Most important for the old, “pure,” or classical gold standard, as originally formulated in England and later, after the formation of the Empire, adopted in Germany, was the fact that it made the formation of prices independent of political influence and the shifting views which sway political action. This feature especially recommended the gold ...

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IV. “Measuring” Changes in the Purchasing Power of the Monetary Unit

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pp. 73-78

All proposals to replace the commodity money, gold, with a money thought to be better, because it is more “stable” in value, are based on the vague idea that changes in purchasing power can somehow be measured. Only by starting from such an assumption is it possible to conceive of a monetary unit with unchanging purchasing power as the ...

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V. Fisher’s Stabilization Plan

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pp. 79-86

The superiority of the gold standard consists in the fact that the value of gold develops independent of political actions. It is clear that its value is not “stable.” There is not, and never can be, any such thing as stability of value. If, under a “manipulated” monetary standard, it was government’s task to influence the value of money, the question of how ...

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VI. Goods-induced and Cash-induced Changes in the Purchasing Power of the Monetary Unit

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pp. 87-91

Changes in the exchange ratios between money and the various other commodities may originate either from the money side or from the commodity side of the transaction. Stabilization policy does not aim only at eliminating changes arising on the side of money. It also seeks to prevent all future price changes, even if this is not always clearly ...

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VII. The Goal of Monetary Policy

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pp. 92-95

Monetary policy of the preliberal era was either crude coin debasement, for the benefit of financial administration (only rarely intended as Seisachtheia,1 i.e., to nullify outstanding debts), or still more crude paper money inflation. However, in addition to, sometimes even instead of, its fiscal goal, the driving motive behind paper money ...

Part II. Cyclical Policy to Eliminate Economic Fluctuations

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p. 97-97

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I. Stabilization of the Purchasing Power of the Monetary Unit and Elimination of the Trade Cycle

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pp. 99-104

“Stabilization” of the purchasing power of the monetary unit would also lead, at the same time, to the ideal of an economy without any changes. In the stationary economy there would be no “ups” and “downs” of business. Then, the sequence of events would flow smoothly and steadily. Then, no unforeseen event would interrupt the ...

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II. Circulation Credit Theory

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pp. 105-116

If notes are issued by the banks, or if bank deposits subject to check or other claim are opened, in excess of the amount of money kept in the vaults as cover, the effect on prices is similar to that obtained by an increase in the quantity of money. Since these fiduciary media, as notes and bank deposits not backed by metal are called, render the service of ...

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III. The Reappearance of Cycles

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pp. 117-127

From the instant when the banks start expanding the volume of circulation credit until the moment they stop such behavior, the course of events is substantially similar to that provoked by any increase in the quantity of money. The difference results from the fact that fiduciary media generally come into circulation through the banks, i.e., as ...

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IV. The Crisis Policy of the Currency School

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pp. 128-130

Every advance toward explaining the problem of business fluctuations to date is due to the Currency School. We are also indebted to this School alone for the ideas responsible for policies aimed at eliminating business fluctuations. The fatal error of the Currency School consisted in the fact that it failed to recognize the similarity between banknotes ...

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V. Modern Cyclical Policy

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pp. 131-138

The cyclical policy recommended today, in most of the literature dealing with the problem of business fluctuations and toward which considerable strides have already been made in the United States, rests entirely on the reasoning of the Circulation Credit Theory.1 The aim of much of this literature is to make this theory useful in practice by ...

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VI. Control of the Money Market

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pp. 139-144

There are many indications that public opinion has recognized the significance of the role banks play in initiating the cycle by their expansion of circulation credit. If this view should actually prevail, then the previous popularity of efforts aimed at artificially reducing the interest rate on loans would disappear. Banks that wanted to expand their issue ...

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VII. Business Forecasting for Cyclical Policy and the Businessman

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pp. 145-147

The popularity enjoyed by contemporary business cycle research, the development of which is due above all to American economic researchers, derives from exaggerated expectations as to its usefulness in practice. With its help, it had been hoped to mechanize banking policy and business activity. It had been hoped that a glance at the business ...

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VIII. The Aims and Method of Cyclical Policy

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pp. 148-152

Without doubt, expanding the sphere of scientific investigation from the narrow problem of the crisis into the broader problem of the cycle represents progress.1 However, it was certainly not equally advantageous for political policies. Their scope was broadened. They began to aspire to more than was feasible. The economy could be organized so ...

The Causes of the Economic Crisis: An Address

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I. The Nature and Role of the Market

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pp. 155-159

The Marxian critique censures the capitalistic social order for the anarchy and planlessness of its production methods. Allegedly, every entrepreneur produces blindly, guided only by his desire for profit, without any concern as to whether his action satisfies a need. Thus, for Marxists, it is not surprising if severe disturbances appear again and again ...

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II. Cyclical Changes in Business Conditions

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pp. 160-162

In our economic system, times of good business commonly alternate more or less regularly with times of bad business. Decline follows economic upswing, upswing follows decline, and so on. The attention of economic theory has quite understandably been greatly stimulated by this problem of cyclical changes in business conditions. In the beginning ...

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III. The Present Crisis

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pp. 163-176

The crisis from which we are now suffering is also the outcome of a credit expansion. The present crisis is the unavoidable sequel to a boom. Such a crisis necessarily follows every boom generated by the attempt to reduce the “natural rate of interest” through increasing the fiduciary media. However, the present crisis differs in some essential ...

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IV. Is There a Way Out?

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pp. 177-178

The severe convulsions of the economy are the inevitable result of policies which hamper market activity, the regulator of capitalistic production. If everything possible is done to prevent the market from fulfilling its function of bringing supply and demand into balance, it should come as no surprise that a serious disproportionality between supply ...

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The Current Status of Business Cycle Research and Its Prospects for the Immediate Future

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pp. 179-186

It is frequently claimed that if the causes of cyclical changes were understood, economic programs suitable for smoothing out cyclical “waves” would be adopted. The upswing would then be throttled down in time to soften the decline that inevitably follows in its wake. As a result, economic development would proceed at a more even pace. The ...

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The Trade Cycle and Credit Expansion: The Economic Consequences of Cheap Money

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pp. 187-198

The author of this paper is fully aware of its insufficiency. Yet, there is no means of dealing with the problem of the trade cycle in a more satisfactory way if one does not write a treatise embracing all aspects of the capitalist market economy. The author fully agrees with the dictum of Böhm-Bawerk: “A theory of the trade cycle, if it is not to be ...


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pp. 199-202

E-ISBN-13: 9781614878858
E-ISBN-10: 1614878854
Print-ISBN-13: 9780865977624

Page Count: 217
Publication Year: 2012

Edition: None