The Theory of Money and Credit - Ludwig von Mises [104]
The ideal of a money with an exchange value that is not subject to variations due to changes in the ratio between the supply of money and the need for it—that is, a money with an invariable innere objektive Tauschwert[10]—demands the intervention of a regulating authority in the determination of the value of money; and its continued intervention. But here immediately most serious doubts arise from the circumstance, already referred to, that we have no useful knowledge of the quantitative significance of given measures intended to influence the value of money. More serious still is the circumstance that we are by no means in a position to determine with precision whether variations have occurred in the exchange value of money from any cause whatever, and if so to what extent, quite apart from the question of whether such changes have been effected by influences working from the monetary side. Attempts to stabilize the exchange value of money in this sense must therefore be frustrated at the outset by the fact that both their goal and the road to it are obscured by a darkness that human knowledge will never be able to penetrate. But the uncertainty that would exist as to whether there was any need for intervention to maintain the stability of the exchange value of money, and as to the necessary extent of such intervention, would inevitably give full license again to the conflicting interests of the inflationists and restrictionists. Once the principle is so much as admitted that the state may and should influence the value of money, even if it were only to guarantee the stability of its value, the danger of mistakes and excesses immediately arises again.
These possibilities, and the remembrance of very recent experiments in public finance and inflation, have subordinated the unrealizable ideal of a money with an invariable exchange value to the demand that the state should at least refrain from exerting any sort of influence on the value of money. A metallic money, the augmentation or diminution of the quantity of metal available for which is independent of deliberate human intervention, is becoming the modern monetary ideal.
The significance of adherence to a metallic-money system lies in the freedom of the value of money from state influence that such a system guarantees. Beyond doubt, considerable disadvantages are involved in the fact that not only fluctuations in the ratio of the supply of money and the demand for it, but also fluctuations in the conditions of production of the metal and variations in the industrial demand for it, exert an influence on the determination of the value of money. It is true that these effects, in the case of gold (and even in the case of silver), are not immoderately great, and these are the only two monetary metals that need be considered in modern times. But even if the effects were greater, such a money would still deserve preference over one subject to state intervention, since the latter sort of money would be subject to still greater fluctuations.
6 The Limits of Monetary Policy
The results of our investigation into the development and significance of monetary policy should not surprise us. That the state, after having for a period used the power which it nowadays has of influencing to some extent the determination of the objective exchange value of money in order to affect the distribution of income, should have to abandon its further exercise, will not appear strange to those who have a proper appreciation of the economic function of the state in that social order which rests upon private property in the means of production. The state does not govern the market; in the market in which products are exchanged it may quite possibly be a powerful party, but nevertheless it is only one party of many, nothing more than that. All its attempts to