The Theory of Money and Credit - Ludwig von Mises [86]
The most important of the causes of a diminution in the value of money of which we have to take account is an increase in the stock of money while the demand for it remains the same, or tails off, or, if it increases, at least increases less than the stock. This increase in the stock of money, as we have seen, starts with the original owners of the additional quantity of money and then transfers itself to those that deal with these persons, and so forth. A lower subjective valuation of money is then passed on from person to person because those who come into possession of an additional quantity of money are inclined to consent to pay higher prices than before. High prices lead to increased production and rising wages, and, because all of this is generally regarded as a sign of economic prosperity, a fall in the value of money is, and always has been, considered an extraordinarily effective means of increasing economic welfare. [13] This is a mistaken view, for an increase in the quantity of money results in no increase of the stock of consumption goods at people's disposal. Its effect may well consist in an alteration of the distribution of economic goods among human beings but in no case, apart from the incidental circumstance referred to on page 138 above, can it directly increase the total amount of goods possessed by human beings, or their welfare. It is true that this result may be brought about indirectly, in the way in which any change in distribution may affect production as well; that is, by those classes in whose favor the redistribution occurs using their additional command of money to accumulate more capital than would have been accumulated by those people from whom the money was withdrawn. But this does not concern us here. What we are concerned with is whether the variation in the value of money has any other economic significance than its effect on distribution. If it. has no other economic significance, then the increase of prosperity can only be apparent; for it can only benefit a part of the community at the cost of a corresponding loss by the other part. And thus in fact the matter is. The cost must be borne by those classes or countries that are the last to be reached by the fall in the value of money.
Let us, for instance, suppose that a new gold mine is opened in an isolated state. The supplementary quantity of gold that streams from it into commerce goes at first to the owners of the mine and then by turns to those who have dealings with them. If we schematically divide the whole community into four groups, the mine owners, the producers of luxury goods, the remaining producers, and the agriculturalists, the first two groups will be able to enjoy the benefits resulting from the reduction in the value of money the former of them to a greater extent than the latter. But even as soon as we reach the third group, the situation is altered. The profit obtained by this group as a result of the increased demands of the first two will already be offset to some extent by the rise in the prices of luxury goods which will have experienced the full effect of the depreciation by the time it begins to affect other goods. Finally for the fourth group, the whole process will result in nothing but loss. The farmers will have to pay dearer for all industrial products before they are compensated by the increased prices of agricultural products. It is true that when at last the prices of agricultural products do rise, the period of economic hardship for the farmers is over; but it will no longer be possible for them to secure profits that will compensate them for the losses they have suffered. That is to say, they will not be able to use their increased