Ludwig von Mises on Money and Inflation.pdf - The Ludwig von ...

position to make any laws it wants. It cannot afford to take into consideration
only the views of the people who are running the government. So
laws tend to follow accepted practices and theories. And that is true in the
field of money too. With respect to money, government must accept and
acknowledge the money that has evolved out of the actions and ideas of
individuals.
Let us take the following political situation. e government wants
to spend more than it has spent up to yesterday, but it doesn’t have the
money. And it doesn’t want to tax more, or for political reasons it simply
cannot tax more. Nor can it borrow the money, because from their point
of view conditions for borrowing appear unsatisfactory. e government
wants to spend more and doesn’t want to tax the people. e government
wants to appear as Santa Claus, which is a very agreeable situation, a more
popular situation than that of a tax collector. erefore, the government
does not tax the people to get the money for its new expenditure; it inflates;
it prints the money. e important point to remember regarding
inflation is that, while the money in circulation is increased, other things
remain unchanged. is inflation is very cheap, you know; it is a very
cheap procedure. What happens then Prices go up. e government, of
course, wants a way out, a solution, so it is apt to try price-fixing. e
government fails to recognize the fact that if the public really obeys its
price-fixing orders, sellers will sell their entire supply of commodities to
regular customers at the former or fixed prices with the result that those
into whose pockets the additional money goes will find nothing to buy.
I want to give a typical example of how government price controls
work. In the First World War and again in the Second, the German government
and the English, among others, embarked upon inflation as a
means of financing the war. e addition of new money to that already
in circulation brought about an up-trend in prices which the government
did not like. e government wanted business as usual. But it was obviously
not business as usual. erefore, the German government, as well
as others, resorted to price controls.
Now, if prices are fixed below what they would have been in the unhampered
market, high cost producers are bound to suffer losses. e
government starts, let us say, by fixing the price of milk. As a result, the
higher-cost producers cease bringing milk to the market and convert their
milk into other end products, butter, for example. us, the quantity
of milk on the market not only does not increase, but actually decreases,
precisely the opposite of what the government wanted. e government
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