Abstract
Mises developed a new theory of money and banking that he fit into the subjectivist value theory developed by Carl Menger. He also provided numerous suggestions and clarifications to specific theoretical questions. Thus he placed the general theory of subjective value on the foundation of the logic of choice; he developed a subjectivist classification system of money as well as a systematic theory of the causes and effects of monetary prices; he researched the international impact of the changing supply of and demand for money and became a pioneer in international monetary economics; he studied the principles of price formation in unorganized markets; and he criticized mechanistic approaches to the quantity theory of money and to value theory, index number theory, as well as the theories of the Currency School and the Banking School. Last but not the least, he developed a famous crisis theory, arguing that the artificial expansion of the money supply has a tendency to lead to intertemporal imbalances within the production structure. The present chapter builds on and extends the studies of Pallas (2004) and Hülsmann (2007, 2012). We will present the historical context of Mises’ monetary thought and then give an outline of his The Theory of Money and Credit.
The present chapter is a revised translation of “Mises’ Geldtheorie” in T. Polleit (ed.), Mises für Einsteiger (Munich: Finanzbuch-Verlag, 2013), pp. 40–82.
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- 1.
The full passage reads as follows: “La crise commerciale qui a eu lieu en Angleterre est propre à faire sentir les inconvénients qui peuvent naître de cette faculté illimitée de multiplier l’argent de la circulation. Les banques ont abusé de cette facilité et se sont servies de leurs billets pour escompter une trop grande quantité d’effets de commerce. Les chefs de beaucoup d’entreprises ont pu, au moyen de ces escomptes, donner à leurs entreprises une extension disproportionnée avec leurs capitaux” Say (1852, pp. 474f).
- 2.
In Great Britain, members included among others Thomas Joplin, James McCulloch, Mountifort Longfield, Richard Torrens, and Samuel Jones-Loyd; in Germany, Wilhelm Tellkampf, Philipp Geyer, Carl Knies, Otto Hübner, and Otto Michaelis; and in France u.a. Henri Cernuschi and Léon Wolowski (see Smith 1990 [1936], p. 145).
- 3.
In Great Britain, members included among others Thomas Tooke, John Fullarton, James Wilson, and H.D. Macleod; in Germany Adolph Wagner and Leopold Lasker; and in France Charles Coquelin, Jean-Gustave Courcelle-Seneuil, Michel Chevalier, and J.E. Horn (see Smith 1990 [1936], p. 145).
- 4.
The exchange between Proudhon and Frédéric Bastiat (1863) is worth reading because both positions are expressed in a particularly clear and eloquent manner.
- 5.
The habilitation diploma is best understood as a professional license for professors who seek employment in the universities of Central Europe. It is obtained on the basis of a comprehensive habilitation thesis dealing with an entire field of inquiry (typically written after a doctoral thesis, which deals with more narrowly defined problems).
- 6.
This was lost in the 1934 Batson translation, which rendered “fiduciary media” systematically as “credit” and thus blurred some of the major distinctions that Mises stressed in his book. Credit and fiduciary media are two very distinct phenomena, even though they are today (as in Mises’ time) usually combined in the practice of banking. Mises stressed that there can be credit without fiduciary media and that fiduciary media do not need to be issued via credit. On the problems of the Batson translation, see Hülsmann (2012, pp. 32–34).
- 7.
This phenomenon is now known as the “Cantillon effect,” after the economist who first researched it in the eighteenth century. See Cantillon (2011 [1755], pp. 147ff).
- 8.
Notice that we quote the first edition (our translation). On the changes that this passage underwent in subsequent editions of the book, see Hülsmann (2012, p. 21, footnote 41).
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Hülsmann, J.G. (2018). Mises’ Monetary Theory. In: Godart-van der Kroon, A., Vonlanthen, P. (eds) Banking and Monetary Policy from the Perspective of Austrian Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-75817-6_2
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