The Theory of Money and Credit was translated from the German by H.E. Batson and published by Jonathan Cape (London) in 1934.

Copyright © 2011 by the Ludwig von Mises Institute
Published under the Creative Commons Attribution License 3.0.
http://creativecommons.org/licenses/by/3.0/

When “Joe the Plumber”—a small business owner who became a hero among conservatives when he challenged candidate Barack Obama’s proposed tax hikes in the 2008 presidential campaign—compiled a list of Christmas book recommendations for The American Spectator, he included The Theory of Money and Credit, saying it was “important reading for these troubled times.” Although Austrians were glad that someone was bringing attention to Mises’s classic work, many were understandably skeptical. After all, The Theory of Money and Credit is a hard book to read.

Summary

Money is necessary in a society based on private property and the division of labor. The function of money is to facilitate these trades: Money is a commonly used medium of exchange.

In a direct exchange, people accept goods in trade that they intend to personally use, whether for consumption or production. There is no medium of exchange involved in the transaction.

Summary

The classical economists relied on an objective theory of value, and naturally thought that money was a measuring rod of this objective value. Modern economics is based on a subjective theory of value, which traces the source of value to the mind of the individual actor. Value is the significance given to a particular good by a person.

Summary

A money substitute is a perfectly secure and immediate claim on money. Because the claims themselves can facilitate indirect exchange, they become a “substitute” for the original commodity money.

The definition of money should serve the purposes of economic theory, the most important being the explanation of the purchasing power of money. For economics, what matters is the actual practices and expectations of individuals in the market, rather than legal formalities.

Summary

Unless it resorts to outright socialism, the State must conform to the market. Its actions in the market are governed by the Laws of Price. In this respect, the State has more influence than any other entity, but this is due to the State’s enormous budget.

Chapter Outline

1.   Money Neither a Production Good nor a Consumption Good

Traditionally, economic goods were divided into consumption goods (what Menger called goods of the first order) and production goods (what Menger called goods of higher orders). Consumption goods directly satisfied human desires, whereas production goods only satisfied them indirectly.

Chapter Outline

1.   Money in the Socialist Community

If a socialist society completely abolishes all property rights and distributes scarce goods and services according to a central plan, then there is no scope for even direct exchange (let alone indirect exchange) and therefore no room for money.