The Theory of Money and Credit - Ludwig von Mises [72]
Nevertheless statesmen are still greatly exercised by the problem of the international distribution of money. For hundreds of years, the Midas theory, systematized by Mercantilism, has been the rule followed by governments in taking measures of commercial policy. In spite of Hume, Smith, and Ricardo, it still dominates men's minds more than would be expected. Phoenixlike, it rises again and again from its own ashes. And indeed it would hardly be possible to overcome it with objective argument; for it numbers its disciples among that great host of the half-educated who are proof against any argument, however simple, if it threatens to rob them of longcherished illusions that have become too dear to part with. It is only regrettable that these lay opinions not only predominate in discussions of economic policy on the part of legislators, the press—even the technical journals—and businessmen, but still occupy much space even in scientific literature. The blame for this must again be laid to the account of obscure notions concerning the nature of fiduciary media and their significance as regards the determination of prices. The reasons which, first in England and then in all other countries, were urged in favor of the limitation of the fiduciary note issue have never been understood by modern writers, who know them only at secondhand or thirdhand. That they in general plead for their retention, or only demand such modifications as leave the principle untouched, merely expresses their reluctance to replace an institution which on the whole has indubitably justified itself by a system whose effects they, to whom the phenomena of the market constitute an insoluble riddle, are naturally least of all able to foresee. When these writers seek for a motive in present-day banking policy, they can find none but that characterized by the slogan, "Protection of the national stock of the precious metals." We can pass the more lightly over these views in the present place since we shall have further opportunity in part three to discuss the true meaning of the bank laws that limit the note issue.
Money does not flow to the place where the rate of interest is highest; neither is it true that it is the richest nations that attract money to themselves. The proposition is as true of money as of every other economic good, that its distribution among individual economic agents depends on its marginal utility. Let us first completely abstract from all geographical and political concepts, such as country and state, and imagine a state of affairs in which money and commodities are completely mobile within a unitary market area. Let us further assume that all payments, other than those cancelled out by offsetting or mutual balancing of claims, are made by transferring money, and not by the cession of fiduciary media; that is to say, that uncovered notes and deposits are unknown. This supposition, again, is similar to that of the "purely metallic currency" of the English Currency School, although with the help of our precise concept of fiduciary media we are able to avoid the obscurities and shortcomings of their point of view. In a state of affairs corresponding to these suppositions of ours, all economic goods, including of course money, tend to be distributed in such a way that a position of equilibrium between individuals is reached, when no further act of exchange that any individual could undertake would bring him any gain, any increase of subjective value. In such a position of equilibrium, the total stock of money, just like the total stocks of commodities, is distributed among individuals according to the intensity with which they are able to express their demand for it in the market. Every displacement of the forces affecting the exchange ratio between money and other economic