Mises on Money

Mises on Money

Gary North

MISES

INSTITUTE

AUBURN, ALABAMA

Copyright © 2012 by the Ludwig von Mises Institute. Permission to reprint in whole or in part is gladly granted, provided full credit is given.

Ludwig von Mises Institute
518 West Magnolia Avenue
Auburn, Alabama 36832

mises.org

ISBN: 978-1-61016-248-7

This book is dedicated to

Tom Woods

an historian who has crossed

over into economics, and to

Tom DiLorenzo

an economist who has crossed

over into history, and to

David Gordon

a philosopher who has crossed

over into history and economics.

Ludwig von Mises (1881–1973) made a major contribution to the theory of money with the publication of his book, The Theory of Money and Credit (1912). He was 31 years old. It was translated into English in 1924. It was updated in 1934. The 1934 edition was reprinted, without changes except for an appendix, in 1953 by Yale University Press. It had previously been published in England.

Mises began his presentation in Part I, Chapter I of The Theory of Money and Credit with a discussion of voluntary exchange. In a society without exchange, money is unnecessary. Mises said specifically in the book’s first paragraph that money is also not needed in theory in a pure socialist commonwealth (p. 29). By contrast, in a private property order, “The function of money is to facilitate the business of the market by acting as a common medium of exchange” (p. 29).

How confident are you that you understand Mises’s monetary theory so far? If this were a final exam in a college class on Mises’s monetary theory, which answer would you select for the following question: The optimum quantity of money should be determined by . . .”?

A. The national government

B. A national government-licensed central bank

C. A world central bank of central banks

D. The economics department of the University of Chicago

There are two myths in the monetary field, according to Mises: the myth of neutral money and the myth of the stable price level. His monetary theory avoided both of them.

Fractional reserve banking under a gold standard, as Mises defined it, is a system of lending wherein a bank issues receipts for money metals supposedly held in reserve, which it does not have in reserve. It therefore issues promises to pay, which are legal liabilities for the bank, yet the bank cannot redeem all of these liabilities on demand. Mises called this form of money credit money or fiduciary media.

Mises regarded his explanation of the business cycle as one of his unique contributions to economic theory. He made more than one: the regression theorem as the theoretical solution to the origin of money, the socialist economic calculation dilemma, and the a priori epistemology for economics. His theory of the monetary origin of the business cycle, he believed in 1931, had been universally accepted.