The principle of sound money that guided nineteenth-century monetary doctrines and policies was a product of classical political economy. It was an essential part of the liberal program as developed by eighteenth-century social philosophy and propagated in the following century by the most influential political parties of Europe and America.

The excellence of the gold standard is to be seen in the fact that it renders the determination of the monetary unit’s purchasing power independent of the policies of governments and political parties. Furthermore, it prevents rulers from eluding the financial and budgetary prerogatives of the representative assemblies. Parliamentary control of finances works only if the government is not in a position to provide for unauthorized expenditures by increasing the circulating amount of fiat money.

The inflationist or expansionist doctrine is presented in several varieties. But its essential content remains always the same.

All the economic arguments in favor of inflation are untenable. The fallacies have long since been exploded in an irrefutable way.

There is, however, a political argument in favor of inflation that requires special analysis. This political argument is only rarely resorted to in books, articles, and political speeches. It does not lend itself to such public treatment. But the underlying idea plays an important role in the thinking of statesmen and historians.

[2] [Some of the problems that have arisen since are referred to in the Editor’s Introduction on p. 13. H.E.B.]

A return to the actual use of gold would be certain to have effects that would scarcely be welcomed. It would lead to a rise in the price of gold, or, what is the same thing, to a fall in the prices of commodities. The fact that this is not generally desired, and the reason why it is not, have already been dealt with. We may confidently suppose that such a fall in prices would cause just as much dissatisfaction as was caused by the process of expelling gold from circulation.

The events of recent years reopen questions that have long been regarded as closed. The question of the freedom of the banks is one of these. It is no longer possible to consider it completely settled as it must have been considered for decades now. Unfortunate experiences with banknotes that had become valueless because they were no longer actually redeemable led once to the restriction of the right of note issue to a few privileged institutions. Yet experience of state regulation of banks-of-issue has been incomparably more unfavorable than experience of uncontrolled private enterprise.