The Theory of Money and Credit - Ludwig von Mises [103]
It is not our business here to discuss whether something better than this could have been thought of. In fact, if it is possible to make any sort of reparation of the damage suffered by creditors at all, it must clearly be sought by way of some such methods of recalculation. But in any case, increasing the purchasing power of money is not a suitable means to this end.
Considerations of credit policy also are adduced in favor of increasing the value of money to the metal parity that prevailed before the beginning of the period of inflation. A country that has injured its creditors through depreciation brought about by inflation, it is said, cannot restore the shattered confidence in its credit otherwise than by a return to the old level of prices. In this way alone can those from whom it wishes to obtain new loans be satisfied as to the future security of their claims; the bondholders will be able to assume that any possible fresh inflation would not ultimately reduce their claims, because after the inflation was over the original metal parity would presumably be returned to. This argument has a peculiar significance[9] for England, among whose most important sources of income is the position of the city of London as the world's banker. All those who availed themselves of the English banking system, it is said, ought to be satisfied as to the future security of the English deposits, in order that the English banking business should not be diminished by mistrust in the future of the English currency. As always in the case of considerations of credit policy like this, a good deal of rather dubious psychology is assumed in this argument. It may be there are more effectual ways of restoring confidence in the future than by measures that do not benefit some of the injured creditors at all—those who have already disposed of their claims—and do benefit many creditors who have not suffered any injury—those who acquired their claims after the depreciation began.
In general, therefore, it is impossible to regard as decisive the reasons that are given in favor of restoring the value of money at the level that it had before the commencement of the inflationary policy, especially as consideration of the way in which trade is affected by a rise in the value of money suggests a need for caution. Only where and so far as prices are not yet completely adjusted to the relationship between the stock of money and the demand for it which has resulted from the increase in the quantity of money, is it possible to proceed to a restoration of the old parity without encountering a too violent opposition.
5 Invariability of the Objective Exchange Value of Money as the Aim of Monetary Policy
Thus, endeavors to increase or decrease the objective exchange value of money prove impracticable. A rise in the value of money leads to consequences which as a rule seem to be desired by only a small section of the community; a policy with this aim is contrary to interests which are too great for it to be able to hold its own against them in the long run. The kinds of intervention which aim at decreasing the value of money seem more popular; but their goal can be more easily and more satisfactorily reached in other ways, while their execution meets with quite insuperable difficulties.
Thus nothing remains but to reject both the augmentation and the diminution of the objective exchange value of money. This suggests the ideal of a money with an invariable exchange value, so far as the monetary influences on its value are concerned. But, this is the ideal money of enlightened statesmen and economists, not that of the multitude. The latter thinks in far too confused a manner to be able to grasp the problems here involved. (It must be confessed that they are the most difficult in economics.)