Liberals will generally concede the right of every individual to his “personal liberty,” to his freedom to think, speak, write, and engage in such personal “exchanges” as sexual activity between “consenting adults.” In short, the liberal attempts to uphold the individual’s right to the ownership of his own body, but then denies his right to “property,” i.e., to the ownership of material objects. Hence, the typical liberal dichotomy between “human rights,” which he upholds, and “property rights,” which he rejects.

The chapters by Mises included here were first published in On the Manipulation of Money and Credit in 1978 by Free Market Books.

On the Manipulation of Money and Credit © 1978 by Liberty Fund, Inc. Reprinted by permission.

Translated from the original German by Bettina Bien Greaves and Percy L. Greaves, Jr.

The Mises Institute would like to thank Bettina Bien Greaves for her support and interest in this new edition.

Foreword (2006) by the Ludwig von Mises Institute.

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 mere botching, can only be written as the last chapter or the last chapter but one of a treatise dealing with all economic problems.”

One of the characteristic features of this age of wars and destruction is the general attack launched by all governments and pressure groups against the rights of creditors. The first act of the Bolshevik Government was to abolish loans and payment of interest altogether. The most popular of the slogans that swept the Nazis into power was Brechung der Zinsknechtschaft, abolition of interest-slavery. The debtor countries are intent upon expropriating the claims of foreign creditors by various devices, the most efficient of which is foreign exchange control.

There is no difference between the ultimate objectives of the anti-interest policies of canon law and the policies recommended by modern interest-baiting. But the methods applied are different. Medieval orthodoxy was intent first upon prohibiting by decree interest altogether and later upon limiting the height of interest rates by the so-called usury laws. Modern self-styled unorthodoxy aims at lowering or even abolishing interest by means of credit expansion.

The rate of interest is a market phenomenon. In the market economy it is the structure of prices, wage rates and interest rates, as determined by the market, that directs the activities of the entrepreneurs toward those lines in which they satisfy the wants of the consumers in the best possible and cheapest way. The prices of the material factors of production, wage rates and interest rates on the one hand and the anticipated future prices of the consumers’ goods on the other hand are the items that enter into the planning businessman’s calculations.

The expansionists are quite right in asserting that credit expansion succeeds in bringing about booming business. They are mistaken only in ignoring the fact that such an artificial prosperity cannot last and must inextricably lead to a slump, a general depression.

It is essential to realize that what makes the economic crisis emerge is the public’s disapproval of the expansionist ventures made possible by the manipulation of the rate of interest. The collapse of the house of cards is a manifestation of the democratic process of the market.