The Theory of Money and Credit - Ludwig von Mises [81]
In its naive belief in the stability of the value of money the law is in complete harmony with public opinion. When any sort of difference arises between law and opinion, a reaction must necessarily follow; a movement sets in against that part of the law that is felt to be unjust. Such conflicts always tend to end in a victory of opinion over the law; ultimately the views of the ruling class become embodied in the law. The fact that it is nowhere possible to discover a trace of opposition to the attitude of the law on this question of the value of money shows clearly that its provisions relating to this matter cannot possibly be opposed to general opinion. That is to say, not only the law but public opinion also has never been troubled with the slightest doubt whatever concerning the stability of the value of money; in fact, so free has it been from doubts on this score that for an extremely long period money was regarded as the measure of value. And so when anybody enters into a credit transaction that s to be fulfilled in money it never occurs to him to take account of future fluctuations in the purchasing power of money.
Every variation in the exchange ratio between money and other economic goods shifts the position initially assumed by the parties to credit transactions in terms of money. An increase in the purchasing power of money is disadvantageous to the debtor and advantageous to the creditor; a decrease in its purchasing power has the contrary significance. If the parties to the contract took account of expected variations in the value of money when they exchanged present goods against future goods, these consequences would not occur. (But it is true that neither the extent nor the direction of these variations can be foreseen.)
The variability of the purchasing power of money is only taken into account when attention is drawn to the problem by the co-existence of two or more sorts of money whose exchange ratio is liable to big fluctuations. It is generally known that possible future variations in foreign-exchange rates are fully allowed for in the terms of credit transactions of all kinds. The part played by considerations of this sort, both in trade within countries where more than one sort of money is in use and in trade between countries with different currencies, is well known. But the allowance for the variability of the value of money in such cases is made in a fashion that is still not incompatible with the supposition that the value of money is stable. The fluctuations in value of one kind of money are measured by the equivalent of one of its units in terms of units of another kind of money, but the value of this other kind of money is for its part assumed to be stable. The fluctuations of the currency whose stability is in question are measured in terms of gold; but the fact that gold currencies are also liable to fluctuation is not taken into account. In their dealings individuals allow for the variability of the objective exchange value of money, so far as they are conscious of it; but they are conscious of it only with regard to certain kinds of money, not with regard to all. Gold, the principal common medium of exchange nowadays, is thought of as stable in value. [3]
So far as variations in the objective exchange value of money are foreseen, they influence the terms of credit transactions. If a future fall in the purchasing power of the monetary unit has to be reckoned with, lenders must be prepared for the fact that