Ludwig von Mises argues that sound money is an instrument for the protection of civil liberties and a means of limiting government power (1912)
About this Quotation:
In the middle of a serious monetary crisis we again turn to Ludwig von Mises for insights. In 1912 he published The Theory of Money and Credit in which he discussed the political and social consequences of a policy of “sound money” (by this he meant money which could not be manipulated by governments for their own ends). In an insight not shared by mainstream economists, Mises argues that sound money policies were part of the 18th and 19th century classical liberal agendas to expand individual liberty and to restrict government power. This is an important aspect of history which most people have lost sight of today to their great cost and inconvenience.
Other quotes from this week:
- 2008: Plato believed that great souls and creative talents produce “offspring” which can be enjoyed by others: wisdom, virtue, poetry, art, temperance, justice, and the law (340s BC)
- 2005: Adam Smith argued that the “propensity to truck, barter, and exchange” was inherent in human nature and gave rise to things such as the division of labour (1776)
- 2004: Thomas Gordon compares the Greatness of Spartacus with that of Julius Caesar (1721)
Other quotes about Money & Banking:
- 2009: Ludwig von Mises lays out five fundamental truths of monetary expansion (1949)
- 2008: Thomas Jefferson in a letter to John Taylor condemns the system of banking as “a blot” on the constitution, as corrupt, and that long-term government debt was “swindling” future generations (1816)
- 2008: Ludwig von Mises identifies the source of the disruption of the world monetary order as the failed policies of governments and their central banks (1934)
- 2008: Ludwig von Mises shows the inevitability of economic slumps after a period of credit expansion (1951)
- 2008: Tom Paine on the "Decline and Fall of the English System of Finance" (1796)
- 2008: Henry Vaughan argues that it is the voluntary and “universal concurrence of mankind”, not the laws, which makes money acceptable as a medium of exchange (1675)
- 2007: Friedrich Hayek rediscovers the importance of Henry Thornton’s early 19th century work on “paper credit” and its role in financing the British Empire (1802)
6 April, 2009
 | Ludwig von Mises argues that sound money is an instrument for the protection of civil liberties and a means of limiting government power (1912) |
The Austrian economist Ludwig von Mises (1881-1973), argues in The Theory of Money and Credit (1912) that "sound money" was a crucial part of classical liberal theory because it was the market’s choice of a commonly used medium of exchange and also a method for obstructing the government’s propensity to meddle with the currency system:
The principle of sound money that guided nineteenth-century monetary doctrines and policies was a product of classical political economy. It was an essential part of the liberal program as developed by eighteenth-century social philosophy and propagated in the following century by the most influential political parties of Europe and America… It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights. The demand for constitutional guarantees and for bills of rights was a reaction against arbitrary rule and the nonobservance of old customs by kings. The postulate of sound money was first brought up as a response to the princely practice of debasing the coinage. It was later carefully elaborated and perfected in the age which—through the experience of the American continental currency, the paper money of the French Revolution and the British restriction period—had learned what a government can do to a nation’s currency system… Thus the sound-money principle has two aspects. It is affirmative in approving the market’s choice of a commonly used medium of exchange. It is negative in obstructing the government’s propensity to meddle with the currency system.
The full passage from which this quotation was taken can be be viewed below (front page quote in bold):
The Classical Idea of Sound Money
The principle of sound money that guided nineteenth-century monetary doctrines and policies was a product of classical political economy. It was an essential part of the liberal program as developed by eighteenth-century social philosophy and propagated in the following century by the most influential political parties of Europe and America.
The liberal doctrine sees in the market economy the best, even the only possible, system of economic organization of society. Private ownership of the means of production tends to shift control of production to the hands of those best fitted for this job and thus to secure for all members of society the fullest possible satisfaction of their needs. It assigns to the consumers the power to choose those purveyors who supply them in the cheapest way with the articles they are most urgently asking for and thus subjects the entrepreneurs and the owners of the means of production, namely, the capitalists and the landowners, to the sovereignty of the buying public. It makes nations and their citizens free and provides ample sustenance for a steadily increasing population.
As a system of peaceful cooperation under the division of labor, the market economy could not work without an institution warranting to its members protection against domestic gangsters and external foes. Violent aggression can be thwarted only by armed resistance and repression. Society needs an apparatus of defense, a state, a government, a police power. Its undisturbed functioning must be safeguarded by continuous preparedness to repel aggressors. But then a new danger springs up. How keep under control the men entrusted with the handling of the government apparatus lest they turn their weapons against those whom they were expected to serve? The main political problem is how to prevent the rulers from becoming despots and enslaving the citizenry. Defense of the individual’s liberty against the encroachment of tyrannical governments is the essential theme of the history of Western civilization. The characteristic feature of the Occident is its peoples’ pursuit of liberty, a concern unknown to Orientals. All the marvelous achievements of Western civilization are fruits grown on the tree of liberty.
It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights. The demand for constitutional guarantees and for bills of rights was a reaction against arbitrary rule and the nonobservance of old customs by kings. The postulate of sound money was first brought up as a response to the princely practice of debasing the coinage. It was later carefully elaborated and perfected in the age which—through the experience of the American continental currency, the paper money of the French Revolution and the British restriction period—had learned what a government can do to a nation’s currency system.
Modern cryptodespotism, which arrogates to itself the name of liberalism, finds fault with the negativity of the concept of freedom. The censure is spurious as it refers merely to the grammatical form of the idea and does not comprehend that all civil rights can be as well defined in affirmative as in negative terms. They are negative as they are designed to obviate an evil, namely omnipotence of the police power, and to prevent the state from becoming totalitarian. They are affirmative as they are designed to preserve the smooth operation of the system of private property, the only social system that has brought about what is called civilization.
Thus the sound-money principle has two aspects. It is affirmative in approving the market’s choice of a commonly used medium of exchange. It is negative in obstructing the government’s propensity to meddle with the currency system.