The evil of inflation

Excerpts: Should the Quantity of Money Be Increased? by Ludwig von Mises and Bettina Bien Greaves

Many famous professors of economics think that the supply of money is insufficient. It's unbelievable but we have now already for a long time, for many years, textbooks that say, in every new edition, that the quantity of money must increase by 2%, or 5%, or 7%. They change it from year to year — this is without any importance, what quantity they recommend is not so important — what is important is that they say that such an increase is good from the point of view of their policies.

Wonderful! The government, the banks, can distribute more money, but they cannot distribute more goods. And this is the problem. As this additional money will raise the prices of goods, those who do not get any of this additional money are hurt. And this is what people don't realize, what they don't see. If this money is increased every year it means only that other groups can say, "Why did we not get more?" And then the government gives them a quantity too and then again to others also. And this is the situation we have today. The question will always be: To whom do you give this additional quantity? Because if the additional quantity is given to somebody else, your conditions will be impaired. . .

However, these inflationary methods are very popular. They are popular because they are very comfortable for the government. They are also very comfortable from the point of view of the individual member of a parliamentary body. The member of Parliament is not made responsible for higher taxes, but he accepts with pleasure the responsibility for higher expenditures. . .

An increase in the quantity of many things is very good — yes, an increase in the supply of those things that are useful. But an increase in the supply of, let us say, rats and mice, would not be very useful. Fortunately, this is not a problem men have to decide about because the interests of all people agree in this regard. But their interests do not agree with regard to money.

What misleads the thinking of many people, and unfortunately also the thinking of those people who are operating our governmental and political activities, is the idea that the quantity of money counts. It is certainly better for the individual to have more money than less. But it is not better for the whole economic system to have more money than less. Money is a medium of exchange. And that means, first of all, that its quantity is without any importance for the perfection of its functions. If you increase the total quantity of money, the total quantity of the medium of exchange, you do not improve conditions generally; you only change exchange ratios between the individuals' evaluations of goods and services and of the thing used as money. . .

If there are more shoes produced, these shoes are something that is offered on the market in exchange for other goods. Ultimately goods are not exchanged against money — money is only a medium of exchange — goods are exchanged against other commodities. And if you increase the quantity of money you do not improve anybody's situation except the definite man to whom you give it; this man can then buy more, can then withdraw more things from the market. . .

Let us say the government says that the government employees have very small salaries; they should get higher salaries. As the government itself does not produce anything, the only successful method for the government to follow is to tax the people and use the revenue collected by taxes for increasing the salaries of certain government employees. There is no possibility for the government to improve the conditions of government employees in any other way than by taking money away from the rest of the population and, therefore, impairing their conditions.

"It is certainly better for the individual to have more money than less. But it is not better for the whole economic system to have more money than less." . .

Let us take potatoes as the example. There are not more potatoes on the market, but there is more money in the hands of the people who want to eat potatoes. While yesterday it was enough for a man to spend one dollar to buy potatoes for his need, today he needs more. He needs today, let us say, two dollars, only because there is more money, not because anything else has changed. If he were only to offer one dollar, then the man who got the additional money from the government would say, "Ho, ho! I will pay $1.10 and I will get the potatoes and you can go home empty-handed." And this is the thing we all are experiencing today — price increases due to inflation.

The government increases the quantity of money. All the evils under which we are suffering in our market conditions everyday are due to the fact that governments believe that it is permissible and natural to produce money to increase the power of the government to spend. In order to spend more, the governments have to do practically nothing but give an order to a printing office: "Print a quantity of money and give it to us." If private citizens do this, the government doesn't like it. . .

What prevents the individual citizen from printing dollar bills, banknotes, is a series of laws that make this a crime, and the government is powerful enough to prevent it by arresting the people and imprisoning them, and so on. But if the government itself prints additional dollars, then it is legal and it increases the quantity of money. And this is the monetary problem. Apart from the fact that this brings about a very bad situation for those people who were not receivers of the new additional money, because they have not received more money, they now face higher prices.