American Edition of Theory of Money and Credit

The success of Human Action paved the way for a new edition of The Theory of Money and Credit in 1953. By the late 1940s, the book had been out of print for some years.⁸⁰Nymeyer was willing to publish a new edition, but Mises chose the more prestigious Yale University Press, which was interested in publishing more of its bestselling author. In true Christian spirit, Nymeyer promoted the book through a flyer campaign. Five thousand flyers were sent to bankers and another 10,000 to other potential buyers.⁸¹

Mises used the opportunity to add a new fourth part to the book on “monetary reconstruction” which argued for reintroducing the gold standard. Here he restated ideas he had expressed in previous works, but greater intellectual maturity had made the exposition simpler. He combined these older, more technical ideas with the case against the only possible alternative to the gold standard, namely, inflation. Mises thought that the United States was on the verge of the steep decline of inflationism and interventionism he had seen in Europe. In only one respect did the American situation differ from Germany in 1914 and 1923: the presence of a vocal opposition against this decline.⁸²

But he also added two crucial insights he had gained since the last edition of his book.

The first of these insights was that there was not even an “emergency case” for inflation. The champions of emergency inflation agreed that there is no economic case for this policy under normal circumstances, but they argued that inflation was justified as a last resort when a national emergency (such as war) required the continued operation of the government and taxation and debt failed to do the job.⁸³

Mises noticed that, if a majority of citizens truly stood behind the government and its project, no inflation would be necessary. In this case, the political determination of the majority would come to be expressed in higher taxation. There was only one conceivable scenario in which the emergency argument applied: if the majority disagreed with the government. Either they believed that the government already had the resources it required, or that there was no emergency in the first place. Either way, resorting to inflation is tantamount to establishing an antidemocratic minority rule. He had raised this point already in 1923 at the height of the German hyperinflation. But his wording then was cautious and he did not insist on the point.⁸⁴ In 1954, he stated unambiguously that inflation was the financial aspect of tyrannies. It is not an instrument of legitimate revenue, but an instrument of oppression:

There is no need to raise the question whether the government's or the majority's opinion is right. Perhaps the government is right. However, we deal not with the substance of the conflict but with the methods chosen by the rulers for its solution. They reject the democratic way of persuading the majority. They arrogate to themselves the power and the moral right to circumvent the will of the people. They are eager to win its cooperation by deceiving the public about the costs involved in the measures suggested. While seemingly complying with the constitutional procedures of representative government, their conduct is in effect not that of elected officeholders but that of guardians of the people. The elected executive no longer deems himself the people's mandatory; he turns into a führer.

He went on:

It is not just an accident that in our age inflation has become the accepted method of monetary management. Inflation is the fiscal complement of statism and arbitrary government. It is a cog in the complex of policies and institutions which gradually lead toward totalitarianism.⁸⁵

The second insight Mises added to the 1954 edition also represents a departure from his thinking in 1934, and even more so from his views of 1912, when he first published the book. The insight concerns the necessity of an actual circulation of gold coins. In 1912, he almost disparaged such “metallistic” views, but forty years of experience had made him wiser. He now emphasized:

Gold must be in the cash holdings of everybody. Everybody must see gold coins changing hands, must be used to having gold coins in his pockets, to receiving gold coins when he cashes his paycheck, and to spending gold coins when he buys in a store.⁸⁶

Of course Mises had not become a gold bug. He had no fetish about the yellow metal or any other metal. The point was that only a commodity currency made the citizens sovereign in monetary matters. As long as they had real money in hand, they were truly in charge of it and they would immediately notice any departure from sound policies. Any bank or government refusal to redeem checks would immediately be recognized as fraud.

What is needed is to alarm the masses in time. The workingman in cashing his paycheck should learn that some foul trick has been played upon him. The President, Congress, and the Supreme Court have clearly proved their inability or unwillingness to protect the common man, the voter, from being victimized by inflationary machinations. The function of securing a sound currency must pass into new hands, into those of the whole nation.⁸⁷

At the end, Mises noticed, there were no arguments against the gold standard; there was only the cynical claim that reintroducing it was a utopian undertaking. He replied very much along the same lines by which he had concluded his critique of socialism:

Yet we have only the choice between two utopias: the utopia of a market economy, not paralyzed by government sabotage on the one hand, and the utopia of totalitarian all-round planning on the other hand. The choice of the first alternative implies the decision in favor of the gold standard.⁸⁸