The Theory of Money and Credit - Ludwig von Mises [208]
One of the goals of the reform suggested is to explode and to kill forever the superstitious belief that governments and banks have the power to make the nation or individual citizens richer, out of nothing and without making anybody poorer. The shortsighted observer sees only the things the government has accomplished by spending the newly created money. He does not see the things the nonperformance of which provided the means for the government's success. He fails to realize that inflation does not create additional goods but merely shifts wealth and income from some groups of people to others. He neglects, moreover, to take notice of the secondary effects of inflation: malinvestment and decumulation of capital.
Notwithstanding the passionate propaganda of the inflationists of all shades, the number of people who comprehend the necessity of entirely stopping inflation for the benefit of the public treasury is increasing. Keynesianism is losing face even at the universities. A few years ago governments proudly boasted of the "unorthodox" methods of deficit spending, pump-priming, and raising the "national income." They have not discarded these methods but they no longer brag about them. They even occasionally admit that it would not be such a bad thing to have balanced budgets and mon etary stability. The political chances for a return to sound money are still slim, but they are certainly better than they have been in any other period since 1914.
Yet most of the supporters of sound money do not want to go beyond the elimination of inflation for fiscal purposes. They want to prevent any kind of government borrowing from banks issuing banknotes or crediting the borrower on an account subject to check. But they do not want to prevent in the same way credit expansion for the sake of lending to business. The reform they have in mind is by and large bringing back the state of affairs prevailing before the inflations of World War I. Their idea of sound money is that of the nineteenth-century economists with all the errors of the British Banking School that disfigured it. They still cling to the schemes whose application brought about the collapse of the European banking systems and currencies and discredited the market economy by generating the almost regular recurrence of periods of economic depression.
There is no need to add anything to the treatment of these problems as provided in part three of this volume and also in my book Human Action. If one wants to avoid the recurrence of economic crises, one must avoid the expansion of credit that creates the boom and inevitably leads into the slump.
Even if for the sake of argument we neglect to refer to these issues, one must realize that conditions are no longer such as the nineteenth-century champions of bank-credit expansion had in mind.
These statesmen and authors regarded the government's financial needs as the main and practically the only threat to the privileged bank's or banks' solvency. Ample historical experience had proved that the government could and did force the banks to lend to them. Suspension of the banknotes' convertibility and legal-tender provisions had transformed the "hard" currencies of many countries into questionable