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

est. In fact the only thing that is newly available is an increased amount of
credit created precisely for this purpose. is system, this “boom,” goes on
until finally it breaks down when it becomes apparent that the so-called
“over-investment” is actually mal-investment or over-expansion in some
areas of the economy.
Nevertheless, we have a situation now in which each of the leading
countries of the world wants to expand, to have a lower rate of interest.
People have always been hostile to interest as such, considering it “usury.”
e idea has long prevailed that the interest rate is something that can be
manipulated ad libitum [at will] by government and the banks. e reason
for this attitude is a misunderstanding of the whole modern economic
system. What makes very great problems is the wish of all countries, or let
us say of the inflationists of all countries, to have a lower rate of interest.
What I am concerned with at this time is the effects this tendency on the
part of each country has on market prices, savings and investment.
If the countries have an international currency, or if they have national
currencies which are free from gold, people will be in favor of increasing
the quantity of money. Few people are in favor of decreasing the quantity
of money and falling prices. If a government wants to become popular, it
will try to raise the prices for the benefit of the consumers, for the benefit
of the producers, and especially for the benefit of the unions. ere will,
therefore, be a tendency toward an increase in the quantity of money. An
increase in the quantity of money brings about higher prices. And if there
is a tendency toward higher prices there is also necessarily a tendency for
interest rates to go up. Recently a columnist wrote in a leading weekly that
we have tamed the business cycle. Perhaps you read his column—I read
it just an hour before leaving for this meeting. But really, there is nothing
to tame unless it be the inflationists, those who want to hold interest rates
low and expand credit artificially, those who do not think that conditions,
as determined by the savings of people, are satisfactory.
Interest rates must go up when there is a general tendency for prices
to go up because, if you buy commodities instead of lending money and
hold the commodities, you make an extra profit in such a situation by
the increase in the prices of the commodities you have bought. erefore,
people will prefer not to lend money to anybody if there is not an indemnification
in the rate of interest which they are receiving for the profit
they could make by buying commodities or stocks themselves and keeping
them for a time until their prices went up. erefore, the state of affairs in
which prices are going up is necessarily a state of affairs in which the rate of
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