Scroll down for the part of chapter that is copied and pasted from the book written by Mises:
New Testament contains 215 verses pertaining to faith; 218 pertaining to salvation; and 2,084 dealing with money matters
READ NEHEMIAH CHAPTER 5 FROM THE BELOW AND YOU WILL SEE THAT INFLATION/DEBASEMENT OR DEBAUCHING OF THE CURRENCY ALWAYS–ALWAYS– HARMS THE POOR FIRST AND THE MOST. THIS IS AN ABOMINATION TO GOD.
Note especially from the below: Nehemiah 5:
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THIS IS THE PART OF A CHAPTER BY MISES:
Thoughts for Tomorrow and Today41
If the supply of caviar were as plentiful as the supply of potatoes, the
price of caviar — that is, the exchange ratio between caviar and money
or caviar and other commodities — would change considerably. In that
case, one could obtain caviar at a much smaller sacrifice than is required
today. Likewise, if the quantity of money is increased, the purchasing
power of the monetary unit decreases, and the quantity of goods that can
be obtained for one unit of this money decreases also.
When, in the sixteenth century, American resources of gold and silver
were discovered and exploited, enormous quantities of the precious metals
were transported to Europe. The result of this increase in the quantity of
money was a general tendency toward an upward movement of prices in
Europe. In the same way, today, when a government increases the quantity
of paper money, the result is that the purchasing power of the monetary
unit begins to drop, and so prices rise. This is called inflation.
Unfortunately, in the United States, as well as in other countries, some
people prefer to attribute the cause of inflation not to an increase in the
quantity of money but, rather, to the rise in prices.
However, there has never been any serious argument against the economic interpretation of the relationship between prices and the quantity
of money, or the exchange ratio between money and other goods, commodities, and services. Under present day technological conditions there
is nothing easier than to manufacture pieces of paper upon which certain
monetary amounts are printed. In the United States, where all the notes
are of the same size, it does not cost the government more to print a bill
of a thousand dollars than it does to print a bill of one dollar. It is purely a
printing procedure that requires the same quantity of paper and ink.
In the eighteenth century, when the first attempts were made to issue
bank notes and to give these bank notes the quality of legal tender — that
is, the right to be honored in exchange transactions in the same way that
gold and silver pieces were honored — the governments and nations
believed that bankers had some secret knowledge enabling them to produce wealth out of nothing. When the governments of the eighteenth century were in financial difficulties, they thought all they needed was a clever banker at the head of their financial management in order to get rid of all their difficulties.
Some years before the French Revolution, when the royalty of France
was in financial trouble, the king of France sought out such a clever banker,
and appointed him to a high position. This man was, in every regard, the
opposite of the people who, up to that time, had ruled France. First of
all he was not a Frenchman, he was a foreigner — a Swiss from Geneva,
Jacques Necker. Secondly, he was not a member of the aristocracy, he was
a simple commoner. And what counted even more in eighteenth century
France, he was not a Catholic, but a Protestant. And so Monsieur Necker,
the father of the famous Madame de Staël, became the minister of finance,
and everyone expected him to solve the financial problems of France. But
in spite of the high degree of confidence Monsieur Necker enjoyed, the
royal cashbox remained empty — Necker’s greatest mistake having been
his attempt to finance aid to the American colonists in their war of independence against England without raising taxes. That was certainly the
wrong way to go about solving France’s financial troubles.
There can be no secret way to the solution of the financial problems
of a government; if it needs money, it has to obtain the money by taxing
its citizens (or, under special conditions, by borrowing it from people who
have the money). But many governments, we can even say most governments, think there is another method for getting the needed money; simply to print it.
If the government wants to do something beneficial — if, for example,
it wants to build a hospital — the way to find the needed money for this
project is to tax the citizens and build the hospital out of tax revenues.
Then no special “price revolution” will occur, because when the government collects money for the construction of the hospital, the citizens —
having paid the taxes — are forced to reduce their spending. The individual
taxpayer is forced to restrict either his consumption, his investments or his
savings. The government, appearing on the market as a buyer, replaces the
individual citizen: the citizen buys less, but the government buys more.
The government, of course, does not always buy the same goods which
the citizens would have bought; but on the average there occurs no rise in
prices due to the government’s construction of a hospital.
I choose this example of a hospital precisely because people sometimes say: “It makes a difference whether the government uses its money
for good or for bad purposes.” I want to assume that the government
always uses the money which it has printed for the best possible purposes with which we all agree. For it is not the way in which the money
is spent, it is the way in which the government obtains this money that
brings about those consequences we call inflation and which most people
in the world today do not consider as beneficial.
For example, without inflating, the government could use the tax-collected money for hiring new employees or for raising the salaries of those
who are already in government service. Then these people, whose salaries
have been increased, are in a position to buy more. When the government
taxes the citizens and uses this money to increase the salaries of government
employees, the taxpayers have less to spend, but the government employees have more. Prices in general will not increase.
But if the government does not use tax money for this purpose, if
it uses freshly printed money instead, it means that there will be people
who now have more money while all other people still have as much as
they had before. So those who received the newly-printed money will be
competing with those people who were buyers before. And since there
are no more commodities than there were previously, but there is more
money on the market — and since there are now people who can buy more
today than they could have bought yesterday — there will be an additional
demand for that same quantity of goods. Therefore prices will tend to go
up. This cannot be avoided, no matter what the use of this newly-issued
money will be.
And more importantly, this tendency for prices to go up will develop
step by step; it is not a general upward movement of what has been called
the “price level.” The metaphorical expression “price level” must never be
When people talk of a “price level,” they have in mind the image of
a level of a liquid which goes up or down according to the increase or
decrease in its quantity, but which, like a liquid in a tank, always rises
evenly. But with prices, there is no such thing as a “level.” Prices do not
change to the same extent at the same time. There are always prices that
are changing more rapidly, rising or falling more rapidly than other prices.
There is a reason for this.
Consider the case of the government employee who received the new
money added to the money supply. People do not buy today precisely the
same commodities and in the same quantities as they did yesterday. The
additional money which the government has printed and introduced into
the market is not used for the purchase of all commodities and services. It
is used for the purchase of certain commodities, the prices of which will
rise, while other commodities will still remain at the prices that prevailed
before the new money was put on the market. Therefore, when inflation
starts, different groups within the population are affected by this inflation
in different ways. Those groups who get the new money first gain a temporary benefit.
When the government inflates in order to wage a war, it has to buy
munitions, and the first to get the additional money are the munitions
industries and the workers within these industries. These groups are now
in a very favorable position. They have higher profits and higher wages;
their business is moving. Why? Because they were the first to receive the
additional money. And having now more money at their disposal, they are
buying. And they are buying from other people who are manufacturing
and selling the commodities that these munitions makers want.
These other people form a second group. And this second group considers inflation to be very good for business. Why not? Isn’t it wonderful to sell more? For example, the owner of a restaurant in the neighborhood of a munitions factory says: “It is really marvelous! The munitions workers have more money; there are many more of them now than before; they are all patronizing my restaurant; I am very happy about it.” He does not see any reason to feel otherwise.
The situation is this: those people to whom the money comes first now
have a higher income, and they can still buy many commodities and services at prices which correspond to the previous state of the market, to the
condition that existed on the eve of inflation. Therefore, they are in a very
favorable position. And thus inflation continues step by step, from one
group of the population to another. And all those to whom the additional
money comes at the early state of inflation are benefited because they are
buying some things at prices still corresponding to the previous stage of
the exchange ratio between money and commodities.
But there are other groups in the population to whom this additional
money comes much, much later. These people are in an unfavorable position. Before the additional money comes to them they are forced to pay
higher prices than they paid before for some — or for practically all —
of the commodities they wanted to purchase, while their income has
remained the same, or has not increased proportionately with prices.
Consider for instance a country like the United States during the Second World War; on the one hand, inflation at that time favored the munitions workers, the munitions industries, the manufacturers of guns, while
on the other hand it worked against other groups of the population. And
the ones who suffered the greatest disadvantages from inflation were the
teachers and the ministers.
As you know, a minister is a very modest person who serves God and
must not talk too much about money. Teachers, likewise, are dedicated
persons who are supposed to think more about educating the young than
about their salaries. Consequently, the teachers and ministers were among
those who were most penalized by inflation, for the various schools and
churches were the last to realize that they must raise salaries. When the
church elders and the school corporations finally discovered that aft er all,
one should also raise the salaries of those dedicated people, the earlier
losses they had suffered still remained.
For a long time, they had to buy less than they did before, to cut down
their consumption of better and more expensive foods, and to restrict
their purchase of clothing — because prices had already adjusted upward,
while their incomes, their salaries, had not yet been raised. (This situation
has changed considerably today, at least for teachers.)
There are therefore always different groups in the population being
affected differently by inflation. For some of them, inflation is not so bad;
they even ask for a continuation of it because they are the first to profit
from it. We will see, in the next lecture, how this unevenness in the consequences of inflation vitally affects the politics that lead toward inflation.
Under these changes brought about by inflation, we have groups who
are favored and groups who are directly profiteering. I do not use the term
“profiteering” as a reproach to these people, for if there is someone to
blame, it is the government that established the inflation. And there are
always people who favor inflation, because they realize what is going on
sooner than other people do. Their special profits are due to the fact that
there will necessarily be unevenness in the process of inflation.
The government may think that inflation — as a method of raising
funds — is better than taxation, which is always unpopular and difficult. In
many rich and great nations, legislators have often discussed, for months
and months, the various forms of new taxes that were necessary because
the parliament had decided to increase expenditures. Having discussed
various methods of getting the money by taxation, they finally decided
that perhaps it was better to do it by inflation.
But of course, the word “inflation” was not used. The politician in
power who proceeds toward inflation does not announce: “I am proceeding toward inflation.” The technical methods employed to achieve the inflation are so complicated that the average citizen does not realize inflation has begun.
One of the biggest inflations in history was in the German Reich aft er
the First World War. The inflation was not so momentous during the war;
it was the inflation aft er the war that brought about the catastrophe. The
government did not say: “We are proceeding toward inflation.” The government simply borrowed money very indirectly from the central bank. The government did not have to ask how the central bank would find and deliver the money. The central bank simply printed it.
Today the techniques for inflation are complicated by the fact that
there is checkbook money. It involves another technique, but the result
is the same. With the stroke of a pen, the government creates fiat money,
thus increasing the quantity of money and credit. The government simply
issues the order, and the fiat money is there.
The government does not care, at first, that some people will be losers,
it does not care that prices will go up. The legislators say: “This is a wonderful system!” But this wonderful system has one fundamental weakness:
it cannot last. If inflation could go on forever, there would be no point
in telling governments they should not inflate. But the certain fact about
inflation is that, sooner or later, it must come to an end. It is a policy that
In the long run, inflation comes to an end with the breakdown of the
currency; it comes to a catastrophe, to a situation like the one in Germany
in 1923. On August 1, 1914, the value of the dollar was four marks and
twenty pfennigs. Nine years and three months later, in November 1923,
the dollar was pegged at 4.2 trillion marks. In other words, the mark was
worth nothing. It no longer had any value.
Some years ago, a famous author, John Maynard Keynes, wrote: “In the
long run we are all dead.” Th is is certainly true, I am sorry to say. But the
question is, how short or long will the short run be? In the eighteenth century there was a famous lady, Madame de Pompadour, who is credited with
the dictum: “Après nous le déluge” (“Aft er us will come the flood”). Madame
de Pompadour was happy enough to die in the short run. But her successor
in office, Madame du Barry, outlived the short run and was beheaded in the
long run. For many people the “long run” quickly becomes the “short run”
— and the longer inflation goes on the sooner the “short run.”
How long can the short run last? How long can a central bank continue
an inflation? Probably as long as people are convinced that the government, sooner or later, but certainly not too late, will stop printing money
and thereby stop decreasing the value of each unit of money.
When people no longer believe this, when they realize that the government will go on and on without any intention of stopping, then they
begin to understand that prices tomorrow will be higher than they are
today. Then they begin buying at any price, causing prices to go up to such
heights that the monetary system breaks down.
41[Ludwig von Mises, Economic Policy: Thoughts for Tomorrow and Today (1979; Washington, D.C.: Regnery Gateway, 2006), Lecture 4, pp. 55–73.]
The Mises Reader Unabridged, pp. 239-245, Shawn Ritenour, Editor
Bishop Nicole Oresme on paper money introduced throughout history through coercion, compulsion and even the threat of the death penalty