Understanding the Dollar Crisis

The author of these lectures, born in 1906, reached his formative years in the Nineteen-Twenties. This was the decade of the great euphoria that ended in an economic collapse the like of which had never before been experienced by civilized men.

The decade started with almost universal hope that the world was finally entering the golden age of peace and prosperity forevermore. It boomed along to higher and higher heights of easy living. The auto, electricity, and the telephone, once luxuries for the few, became necessities for the many. Then, the decade ended with a depression that liquidated savings and left millions penniless and unemployed through no fault of their own.

With the advent of the Thirties, families, totally innocent of any wrongdoing, suffered unspeakable economic hardships with appearances of plenty all around them. On the farms, mortgages were foreclosed and families dispossessed from the homes of their ancestors. In the cities, jobless millions and their families became beggars for the means of survival.

The author’s father came to this country in 1889, at the age of 14. He had left Barbados, British West Indies, shortly after the death of his father, a plantation overseer. With only four years of schooling, the young immigrant took what jobs he could get. In 1904, he married a girl whose American ancestry went back to colonial days. Together, they worked hard for a quarter of a century to support their growing family.

In early 1929, it looked as though they were going to make it. The mortgage on the modest family home had been reduced. After forty years of employment, the father’s job with a large steamship company seemed secure. The three oldest children were on their own. Only two more, one born in 1919 and another in 1920, needed to get through high school and become self-supporting. Then life would be easier.

However, the depression hit them in the spring of 1930. The father lost his job and could find no other employment. There were just no openings for unemployed men in their late fifties. The family’s situation was pitiful. Unfortunately, their plight was typical of thousands of other New York City families.

The author of these lectures was the oldest son. He had been brought up on the gospel that free enterprise, free elections, and free perspiration paved the way to success. He had worked his way through college. Graduating magna cum laude in the spring of 1929, at the head of his class in business administration, he had the pick of jobs with many of the nation’s most prosperous corporations. He accepted one where the prospects seemed bright. He was promptly enrolled in an ambitious junior executive training plan that promised him a raise every six months if he made the grade. Having majored in foreign trade, he had high hopes of spreading the glories of the American way of life to those benighted lands that still hampered business activity with trade restrictions, high taxes, and class distinctions that kept their people from moving up the ladder of success.

However, the depression brought a merger and soon the company had a surplus of experienced executives. The executive training program went out the window. The author survived another six months. He was given two months’ pay and let go in the summer of 1932 — just weeks before the birth of his first son. Like his father, he could find no employment. With millions of older men walking from door to door in search for jobs, there were few openings for bright young men with little or no experience to offer. They were even rejected for low-paying jobs. Employers did not want to waste time breaking in those who would leave for more promising positions once the momentarily expected upturn arrived. But the upturn failed to appear.

Why, for long troublesome years, were so many, young and old, unable to find work at livable wages?

This gnawing question set the author off on a lifelong quest for an acceptable answer. First, he enrolled as a Doctor of Philosophy candidate in economics at Columbia University. Short of the desired degree, he was led by family economic pressures to accept a rare opportunity to work in Washington for the newly formed United States News. For two years (1934-36), he covered and reported the financial and economic upheavals by which the New Deal overthrew the traditions of our Founding Fathers. From Washington, he went to Europe as an executive for an American food company. There, he witnessed and experienced firsthand the ravages of Britain’s mass unemployment, of France’s Front Populaire with its sit-down strikes, and, last but not least, of the operation of Hitler’s national socialist dictatorship in Germany.

All the time, he was searching for a logical answer to the problem of unemployment and misery among masses of innocent people eager for a chance to earn a decent livelihood.

Domiciled in Paris, he was paid in French francs. Within a short period his franc salary was raised 50 percent, but with the increasing French inflation and German monetary restrictions, he suffered a painful economic squeeze. Shortly before Munich, he resigned and returned to the United States to accept a public relations position with the nation’s then largest life insurance company — a company which collected, invested, and made available, when needed most, the savings of millions of our fellow citizens.

The Federal Government was looking for new fields to conquer. Life insurance company assets were the largest private funds in the nation free from Federal regulation and control. The Temporary National Economic Committee (TNEC) proposed a new Federal regulatory body to supervise the assets that policyholders had entrusted to life insurance companies. The author was loaned to a life insurance industry committee to help prepare a rebuttal to this proposal. His research indicated that the high “cash surrenders” of poor families’ insurance policies were not due to the alleged company pressure to sell them more insurance than their low incomes could safely support. In truth, such policy cash surrenders were due to the fact that the cash values of their policies were the only savings many poor families had to draw upon in times of financial emergency. If they had not had them to cash in, their lives would have been even more bleak.

His studies and experiences at home and abroad had confirmed his opposition to further government encroachments on the freedom of individuals in their personal and occupational pursuits of happiness. During World War II, he served as Research Director of the Republican National Committee, where he opposed the Administration’s efforts to use the war as a cloak for the advancement of socialist measures. Early in 1945, when the Committee ceased its former opposition to the basic New Deal interventions and informed its employees that they could no longer work against public housing, Federal aid to education, or programs for socializing medicine, he resigned.

From the fall of 1945 to the summer of 1946, the author served as Chief of the Minority Staff for the Joint Congressional Committee on the Investigation of the Pearl Harbor Attack, and helped draft the Minority Report. Here, he learned how successful politicians are able to mislead the voters and keep their mistakes from public view. The following spring he served as Committee expert for the House Committee on Education and Labor. In this capacity, he attended all Committee hearings and helped prepare the first draft of what later became the National Labor Relations Act of 1947, more popularly known as the Taft-Hartley Law. For more than eight years (1950-58), the author served as Economic Advisor to the Christian Freedom Foundation and columnist for its publication, Christian Economics, at that time a fortnightly circulated to 200,000 Protestant clergy.

The author first became aware of Ludwig von Mises, the dean of free market (Austrian) economic theory, in 1944, when he read his Bureaucracy and Omnipotent Government. In 1950, he read Mises’ great treatise, Human Action, for the first time. He has read it many times since. Shortly after coming to New York in 1950, the author registered for the fall term of the Mises graduate seminar at New York University. He continued as a regular and active participant until its last session, nineteen years later.

In the last twenty-two years, the author has developed a very close association with Mises. In the course of his studies, readings, and many conversations with Mises, he finally found answers that fully satisfied him as to the real causes of inflation, mass unemployment, and modern economic depressions. The Mises answers are very logical and most enlightening. If the public or its leaders could grasp their significance, the major miseries of our contemporary world would soon be greatly diminished.

During the last twenty-five years, the author has lectured widely to both private and academic groups. For several years in the 1950s, he presented a series of lectures at the Freedom School outside of Colorado Springs. From 1962 through 1967, he participated in the seminars of the Foundation for Economic Education, Inc. From 1965 to 1971, Mises and he formed the Economics Department of the newly created University of Piano. Mises usually gave the opening lectures, and then the author, as the Armstrong Professor of Economics, presented two courses of Misesian economics each semester. The author thus developed a certain facility for presenting the ideas of Mises in a language the layman can understand.

Early in 1969, Alberto Benegas Lynch, the president of Argentina’s Centro de Estudios sobre la Libertad, invited the author to present a series of lectures in Buenos Aires later that year. The seven lectures that appear in this volume are the result. More and more people in many lands are now seriously worried about the monetary and inflationary problems of our time. Unfortunately, the pace of modern life leaves them little time for prolonged study. Many would like to get a satisfactory explanation in five or ten minutes, or at most in a single lecture. Unfortunately, the situation has become too complicated for that.

The study of money is at the apex of that mountain of human knowledge known as economics. To get to the top, one must first have a familiarity with what lies below it. The author thus contends that one must first understand the basic principles of human action and market processes before one can begin to comprehend the fundamental economic problem of our century. Unfortunately, these basic principles are seldom presented in the government-dominated school systems of our times. Our means of mass communication reflect the interventionist ideas of their unionized employees, who are legally privileged to block the employment of those committed to free market ideas. As a result, few people are familiar with such ideas. Accordingly, the first four lectures present basic elementary principles that must be fully grasped before one has a sufficient background to comprehend an analysis of our monetary problems.

The fifth lecture is an attempt to present in simple terms the free market theory of money. The sixth lecture is the longest. It analyzes the development of the 1929 depression from the viewpoint of Mises’ Monetary Theory of the Trade Cycle. The last lecture brings that interpretation of monetary developments up through the events of 1968 and the end of the Johnson Administration.

Although the public prints and airwaves have devoted much attention to the inflation problem, there is seldom any mention of the basic underlying cause — the increase, by political manipulation, in the number of dollars, which are declared legal tender and must be accepted in payment of all debts and contracts. Most of the academic, political, and popular discussions dwell on the irrelevant pros and cons of proposed governmental fiscal and monetary policies, while ignoring the true cause of our troubles. Most steps proposed for ending inflation are just as fanciful as “the emperor’s new clothes,” in the famous tale of that name by Hans Christian Andersen.

For years, it has been generally assumed that governments must manipulate the quantity of legal tender within the nation in order to maintain full employment and economic progress. It has been further assumed that they can do this and still have a free society. However, it is now being increasingly admitted that such debates over political policies of monetary management are actually debates over “how the government should manage the economy.” It is thus slowly dawning on more and more people that all such policies are not the methods of a free society. They are, rather, the little understood tools of a government-managed economy. They were the tools that inevitably turned Hitler’s National Socialism toward totalitarianism, war, and defeat. They can be just as disastrous for us.

On the late afternoon of November 14, 1968, New York University sponsored a “great debate” on Monetary vs. Fiscal Policy, between Professors Milton Friedman of the University of Chicago and Walter Heller of the University of Minnesota. There was an overflow audience and it was front page news in many papers. Printed copies were later sent to all economics professors with the suggestion that it was relevant for their courses as “a readable exchange between two of the nation’s best-known economists who take contrasting views of government’s role in managing the national economy.” (Emphasis added.) Later that same evening, Mises’ seminar met in a small room across the hall from the large main auditorium. It was early in the final teaching year of this great authority on monetary problems. Fewer than a dozen graduate students came to hear him. Such is the public blindness to economic truth — a blindness which is destroying our country’s economic freedom.

At another seminar session, Mises was asked by a graduate student what he would have the government do during a depression. Mises replied in his quiet manner by presenting his free market position in a few well chosen words. The student, aghast, exclaimed: “You mean the government should do nothing?” Mises leaned back, as he frequently did, and said: “Yes, but I mean the government should start doing nothing much sooner!”

As Mises has written (1967): “Inflationism is not a variety of economic policies. It is an instrument of destruction; if not stopped very soon, it destroys the market entirely. . . . Inflationism cannot last; if not radically stopped in time, it must inexorably lead to a complete breakdown. It is an expedient of people who do not care a whit for the future of their nation and its civilization. It is Madame de Pompadour’s policy: Après nous le déluge.”1

The policies of political money management have not brought the desired results. In short, they have failed, and the government has now moved, as Hitler did, into the direct control of prices and wages. The hour is already late. Those who are interested in preserving civilization and a free society would do well to take the time to read the lectures that follow. They present the problem and the solution from the long neglected free market viewpoint — a viewpoint which maintains that a free people should be free to choose their own money in the marketplace, even if they would choose GOLD. Before we succumb to a complete economic and political dictatorship, with its inevitable decline and fall of civilization, some attempt should be made to understand the processes of economic freedom, which have provided more people with the highest living standards ever known.

*    *    *

These lectures, originally presented in Buenos Aires, Argentina, were well attended. There were overflow crowds on all but two occasions. They were given ad lib in English and translated simultaneously for an audience provided with earphones. Both the English and Spanish versions were taped. Several of the lectures have already been published in Spanish and it is hoped they will eventually be available in a Spanish language book.

In closing, I want to thank each and every one who contributed to making these lectures a success, and particularly the members of the Centro de Estudios sobre la Libertad who sponsored them. I must also thank Mr. Prager, who, I am told, did an excellent job of translating them as they were given. Without him and the devoted activities of Sr. Alberto Benegas Lynch and his elder son, Alberto, hijo (Jr.), who translated the questions, these lectures would have been impossible.

Needless to say, I owe undying thinks to my great teacher, Mises, who for years has put up with my everlasting questions in search of the answers I soon found only he could supply. It was he who gave me what understanding I have of these most important issues on which the future of civilization now hinges. I have tried to present his ideas as best I could. He is not, of course, responsible for the inevitable human errors that must have crept into my presentation.

Mises gave his last public lectures in 1970. It was my honor and privilege to travel and appear with him in three different parts of the country that year. On May 1st, a Seattle audience of 490 people gave him a standing ovation after hearing one of his best lectures ever on the twin dangers of inflation and a socialist dictatorship. Fortunately, this talk has been preserved on tape. Later, in the fall, when he was already in his ninetieth year, we presented two seminars on the monetary problem in the San Francisco area. In December, we went to Texas, where he answered questions from my students at the University of Plano for the last time.

By then, he had read the lectures which appear on the following pages. He had kind words for them, but in a private conversation in his Dallas hotel he chided those who first used the term “money supply.” He pointed out that the word “supply” carries a subtle connotation of “the more, the better.” Thus, the use of the term “money supply” carries with it the half-concealed suggestion that when a government increases the “money supply,” it is providing society with more of the good things of life. Actually, an increase in the quantity of money does not supply more of the goods and services that people really want. It merely helps some at the expense of others, while upsetting the peaceful processes of a more bountiful free market society in a manner that makes a recession or depression inevitable. I took the hint and shall do my best not to use this misleading term in the future.

Last but not least, I must thank my beloved wife and fellow-student of Mises, Bettina Bien Greaves. Her understanding of and familiarity with the works of Mises, in German as well as English, has made her suggestions, contributions, and encouragement along the way most helpful. She has had the patience of Job and the indefatigable industry of a bee. In addition to her many functions as a Senior Staff member of the Foundation for Economic Education, Inc., an efficient housekeeper, a devoted daughter to a frail mother, and a dutiful wife, she transcribed these lectures from the original tapes and helped prepare and type the final copy for the publisher. She is solely responsible for the index. Without her help, cooperation, and persistence, this book would never have been possible.

Percy L. Greaves, Jr.

May 1972

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2  American Opinion, March 1967.

• 1  American Opinion, March 1967.
• 2As Mises has written (1967): “Inflationism is not a variety of economic policies. It is an instrument of destruction; if not stopped very soon, it destroys the market entirely. . . . Inflationism cannot last; if not radically stopped in time, it must inexorably lead to a complete breakdown. It is an expedient of people who do not care a whit for the future of their nation and its civilization. It is Madame de Pompadour’s policy: Après nous le déluge.”