The theory of money and credit Quotes

“If the State uses this power systematically in order to force the community to accept a particular sort of money whose employment it desires for reasons of monetary policy, then it is actually carrying through a measure of monetary policy. The States which completed the transition to a gold standard a generation ago, did so from motives of monetary policy. They gave up the silver standard or the credit-money standard because they recognized that the behaviour of the value of silver or of credit money was unsuited to the economic policy they were following.”

“So far as variations in the objective exchange-value of money are foreseen, they influence the terms of credit transactions. If a future fall in the purchasing power of the monetary unit has to be reckoned with, lenders must be prepared for the fact that the sum of money which a debtor repays at the conclusion of the transaction will have a smaller purchasing power than the sum originally lent. Lenders, in fact, would do better not to lend at all, but to buy other goods with their money. The contrary is true for debtors. If they buy commodities with the money they have borrowed and sell them again after a time, they will retain a surplus over and above the sum that they have to pay back. The credit transaction results in a gain for them. Consequently it is not difficult to understand that, so long as continued depreciation is to be reckoned with, those who lend money demand higher rates of interest and those who borrow money are willing to pay the higher rates. If, on the other hand, it is expected that the value of money will increase, then the rate of interest will be lower than it would otherwise have been.”

“The collapse of an inflation policy carried to its extreme -- as in the United States in 1781 and in France in 1796 -- does not destroy the monetary system, but only the credit money or fiat money of the State that has overestimated the effectiveness of its own policy. The collapse emancipates commerce from etatism and establishes metallic money again.”

“That policy which aims at raising the objective exchange-value of money is called, after the most important means at its disposal, restrictionism or deflationism. This nomenclature does not really embrace all the policies that aim at an increase in the value of money. The aim of restrictionism may also be attained by not increasing the quantity of money when the demand for it increases, or by not increasing it enough. This method has quite often been adopted as a way of increasing the value of money in face of the problems of a depreciated credit-money standard.”

“Big variations in the value of money give rise to the danger that commerce will emancipate itself from the money which is subject to State influence and choose a special money of its own. But without matters going so far as this it is still possible for all the consequences of variations in the value of money to be eliminated if the individuals engaged in economic activity clearly recognize that the purchasing power of money is constantly sinking and act accordingly. If in all business transactions they allow for what the objective exchange-value of money will probably be in the future, then all the effects on credit and commerce are finished with. In proportion as the Germans began to reckon in terms of gold, so was further depreciation rendered incapable of altering the relationship between creditor and debtor or even of influencing trade. By going over to reckoning in terms of gold, the community freed itself from the inflationary policy of the government. Thus it checkmated this inflationary policy, and eventually even the government was obliged to acknowledge gold as a basis of reckoning.”

“The function of money is to facilitate the business of the market by acting as a common medium of exchange.”

“Before it was usual to acquire goods in the market, not for personal consumption, but simply in order to exchange them again for the goods that were really wanted, each individual commodity was only accredited with that value given by the subjective valuations based on its direct utility. It was not until it became customary to acquire certain goods merely in order to use them as media of exchange that people began to esteem them more highly than before, on account of this possibility of using them in indirect exchange. The individual valued them in the first place because they were useful in the ordinary sense, and then additionally because they could be used as media of exchange. Both sorts of valuation are subject to the law of marginal utility.”

“The marginal utility of money to any individual, i.e., the marginal utility derivable from the goods that can be obtained with the given quantity of money or that must be surrendered for the required money, presupposes a certain exchange-value of the money; so the latter cannot be derived from the former. 1 Those who have realized the significance of historically-transmitted values in the determination of the objective exchange-value of money will not find great difficulty in escaping from this apparently circular argument.”

“If all the exchange-ratios of the past were erased from human memory, the process of market-price-determination might certainly become more difficult, because everybody would have to construct a new scale of valuations for himself; but it would not become impossible. In fact, people the whole world over are engaged daily and hourly in the operation from which all prices result: the decision as to the relative significance enjoyed by specific quantities of goods as conditions for the satisfaction of wants.”

“Under bilateral competition, market-price is determined within a range whose upper limit is set by the valuations of the lowest bidder among the actual buyers and the highest offerer among the excluded would-be sellers, and whose lower limit is set by the valuations of the lowest offerer among the actual sellers and the highest bidder among the excluded would-be buyers.”