The Theory of Money and Credit - Ludwig von Mises [9]
For the rest, it has been far from my intention to deal critically with the flood of new publications devoted to the problems of money and credit. In science, as Spinoza says, "the truth bears witness both to its own nature and to that of error." My book contains critical arguments only where they are necessary to establish my own views and to explain or prepare the ground for them. This omission can be the more easily justified in that this task of criticism is skillfully performed in two admirable works that have recently appeared. [2]
The concluding chapter of part three, which deals with problems of credit policy, is reprinted as it stood in the first edition. Its arguments refer to the position of banking in 1911, but the significance of its theoretical conclusions does not appear to have altered. They are supplemented by the above-mentioned discussion of the problems of present-day banking policy that concludes the present edition. But even in this additional discussion, proposals with any claim to absolute validity should not be sought for. Its intention is merely to show the nature of the problem at issue. The choice among all the possible solutions in any individual case depends upon the evaluation of pros and cons; decision between them is the function not of economics but of politics.
LUDWIG VON MISES
Vienna
March 1924
[1] See Altmann, "Zur deutschen Geldlehre des 19. Jahrhunderts," in Die Entwicklung der deutschen Volkswirtschaftslehre im 19. Jahrhundert, Schmoller Festschrift (Leipzig, 1908).
[2] See Döring, Die Geldtheorien seit Knapp, 1st ed. (Greifswald, 1921; 2d ed. Greifswald, 1922); Palyi, Der Streit um die Staatliche Theorie des Geldes (Munich and Leipzig, 1922) (also in Schmoller's Jahrbuch, 45. Jahrgang). Also see the acute investigations of G. M. Verrijn Stuart, Inleiding tot de Leer der Waardevastheid van het Geld ('s Gravenhage, 1919).
Part One: The Nature of Money
Chapter 1. The Functions of Money
1. The General Economic Conditions for the Use of Money. 2. The Origin of Money. 3. The "Secondary" Functions of Money
1 The General Economic Conditions for the Use of Money
Where the free exchange of goods and services is unknown, money is not wanted. In a state of society in which the division of labor was a purely domestic matter and production and consumption were consummated within the single household it would be just as useless as it would be for an isolated man. But even in an economic order based on division of labor, money would still be unnecessary if the means of production were socialized, the control of production and the distribution of the finished product were in the hands of a central body, and individuals were not allowed to exchange the consumption goods allotted to them for the consumption goods allotted to others.
The phenomenon of money presupposes an economic order in which production is based on division of labor and in which private property consists not only in goods of the first order (consumption goods), but also in goods of higher orders (production goods). In such a society, there is no systematic centralized control of production, for this is inconceivable without centralized disposal over the means of production. Production is "anarchistic." What is to be produced, and how it is to be produced, is decided in the first place by the owners of the means of production, who produce, however, not only for their own needs, but also for the needs of others, and in their valuations take into account, not only the use-value that they themselves attach to their products, but also the use-value that these possess in the estimation of the other members of the community. The balancing of production and consumption takes place in the market, where the different producers meet to exchange goods and services