Having learned much from the interesting, excellent HES exchange on
the neutrality of money, may I add some further minor points?
(1) Mises was certainly not the first to attract attention to
where in the economy the new money comes in "first", and to the
consequences on relative prices (including the rate of interest) and
(possibly) on capital accumulation. Hayek,1935, chap.1 and Hayek,
1932, are very useful references on the history of this idea, in its
different versions (including Cantillon's and Wicksell's versions,
the one proposed by Malthus, etc).
(2) Mises and other Austrians (as Larry Moss, Pat Gunning and Steve
Horwitz have aptly remarked) opposed discretionary monetary policy.
In Mises's view, when, in addition to "money proper", there is also
fiduciary money (which includes bank-money, a component of loanable
funds) the negative "social consequences" of monetary expansions
(redistribution in favour of the issuing authority, of debtors, and
of the receivers of variable-incomes) are greatly exacerbated, as
capital accumulation is directly interfered with. As has been
remarked , the disequilibrium process amounts to the banks
artificially distorting relative price "signals" and violating
consumers' sovereignty. Since there is no real saving to "back" the
longer production processes induced by their policy, the "disruption
of capital" necessarily follows.
(3) It is interesting, I think, that in his book Mises also told a
different story, according to which a monetary expansion may lead
to a permanent increase in the capital stock, via its distributional
effects, and its consequent augmenting effects on total saving. But
he decided not to develop this alternative story, which would have
led him towards a different approach to money and capital formation.
See (if interested) my article 'Money, cycles and capital formation:
von Mises the "Austrian" vs. Robertson the "Dynamist" ', forthcoming
in the Cambridge Journal of Economics, 2005; currently at the Advance
Access section of the CJE website:
http:/www.cje.oupjournals.org
Lilia Costabile
Hayek, Prices and Production, 1935.
Hayek, "A note on the development of the doctrine of forced saving",
Quarterly Journal of Economics, 1932
Mises, The theory of money and credit, The Foundation for Economic
Education, Irvington on Hudson, New York, 1971 (many of Mises's
arguments date back to previous editions of this book, published in
the first decades of the XXth century).
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