The Theory of Money and Credit - Ludwig von Mises [66]
2 Alleged Local Differences in the Purchasing Power of Money
In contrast to the law of interlocal price relations that has just been explained is the popular belief in local variations in the purchasing power of money. The assertion is made again and again that the purchasing power of money may be different in different markets at the same time, and statistical data are continually being brought forward to support this assertion. Few economic opinions are so firmly rooted in the lay mind as this. Travelers are in the habit of bringing it home with them, usually as a piece of knowledge gained by personal observation. Few visitors to Austria from Germany at the beginning of the twentieth century had any doubts that the value of money was higher in Germany than in Austria. That the objective exchange value of gold, our commodity money º±Ä' µ¾¿Ç·½ (kat esechun), stood at different levels in different parts of the world, passed for established truth in even economic literature. [2]
We have seen where the fallacy lies in this, and may spare ourselves unnecessary repetition. It is the leaving out of account of the positional factor in the nature of economic goods, a relic of the crudely materialist conception of the economic problem, that is to blame for this confusion of ideas. All the alleged local differences in the purchasing power of money can easily be explained in this way. It is not permissible to deduce a difference in the purchasing power of money in Germany and in Russia from the fact that the price of wheat is different in these countries, for wheat in Russia and wheat in Germany represent two different species of goods. To what absurd conclusions should we not come if we regarded goods lying in bond in a customs or excise warehouse and goods of the same technological species on which the duty or tax had already been paid as belonging to the same species of goods in the economic sense? We should then apparently have to suppose that the purchasing power of money could vary from building to building or from district to district within a single town. Of course, if there are those who prefer to retain commercial terminology, and think it better to distinguish species of goods merely by their external characteristics, we cannot say that they shall not do this. To contend over terminological questions would be an idle enterprise. We are not concerned with words, but with facts. But if this form of expression, in our opinion the less appropriate, is employed, care must be taken in some way to make full allowance for distinctions based on differences in the places at which the commodities are situated ready for consumption. It is not sufficient merely to take account of costs of transport and of customs duties and indirect taxes. The effect of direct taxes, for example, the burden of which is to a large extent transferable also, must be included in the calculation.
It seems better to us to use the terminology suggested above, which stresses with greater clearness that the purchasing power of money shows a tendency to come to the same level throughout the world, and that the alleged differences in it are almost entirely explicable by differences in the quality of the commodities offered and demanded, so that there is only a small and almost negligible remainder left over, that is due to differences in the quality of the offered and demanded money.
The existence of the tendency itself is hardly questioned. But the force which it exerts, and hence its importance also, are estimated variously, and the old classical proposition, that money like every other commodity always seeks out the market in which it has the highest value, is said to be mistaken. Wieser has said in this connection that the monetary transactions involved in exchange