The Theory of Money and Credit - Ludwig von Mises [88]
A diminution of the value of money brought about by any other kind of cause has an entirely similar effect. For the economic consequences of variations in the value of money are determined, not by their causes, but by the nature of their slow progress, from person to person, from class to class, and from country to country. If we consider in particular those variations in the value of money which arise from the action of sellers in increasing prices, as described in the second chapter of this part, we shall find that the resultant gradual diminution of the value of money constitutes one of the motives of the groups which apparently dictate the rise of prices. The groups which begin the rise have it turned to their own disadvantage when the other groups eventually raise their prices too; but the former groups receive their higher prices at a time when the prices of the things they buy are still at the lower level. This constitutes a permanent gain for them. It is balanced by the losses of those groups who are the last to raise the prices of their goods or services; for these already have to pay the higher prices at a time when they are still receiving only the lower prices for what they sell. And when they eventually raise their prices also, being the last to do this they can no longer offset their earlier losses at the expense of other classes of the community. Wage laborers used to be in this situation, because as a rule the price of labor did not share in the earlier stages of upward price movements. Here the entrepreneurs gained what the laborers lost. For a long time, civil servants were in the same situation. Their multitudinous complaints were partly based on the fact that, since their money incomes could not easily be increased, they had largely to bear the cost of the continual rise in prices. But recently this state of affairs has been changed through the organization of the civil servants on trade-union lines, which has enabled them to secure a quicker response to demands for increases of salaries.
The converse of what is true of a depreciation in the value of money holds for an increase in its value. Monetary appreciation, like monetary depreciation, does not occur suddenly and uniformly throughout a whole community, but as a rule starts from single classes and spreads gradually. If this were not the case, and if the increase in the value of money took place almost simultaneously in the whole community, then it would not be accompanied by the special kind of economic consequences that interest us here. Let us assume, for instance, that bankruptcy of the credit-issuing institutions of a country leads to a panic and that everybody is ready to sell commodities at any price whatever in order to put himself in possession of cash, while on the other hand buyers cannot be found except at greatly reduced prices. It is conceivable that the increase in the value of money that would arise in consequence of such a panic would reach all persons and commodities uniformly and simultaneously. As a rule, however, an increase in the value of money spreads only gradually. The first of those who have to con tent themselves with lower prices than before for the commodities they sell, while they still have to pay the old higher prices for the commodities they buy, are those who are injured by the increase in the value of money. Those, however, who are the last to have to reduce the prices of the commodities they sell, and have meanwhile been able to take advantage of the fall in the prices of other things, are those who profit by the change.
4 The Consequences of Variations in the Exchange Ratio Between Two Kinds of Money
Among the consequences of variations in the value of money it is those of variations in the exchange ratio between two different kinds of money in which economic science has been chiefly interested. This interest has been aroused by the events of monetary history. In the course of the nineteenth century international trade developed in