After just completing my 2nd read of this text, all I can say is Wow. This is not a fast or light read, and I found myself marking up the margins with notes to keep pace. At times it can be wordy and Von Mises is arguably prone to going off on tangents to prove a circular point. If you are committed to understanding money and are willing to invest the time and energy, then this will be a very rewarding investigation that will shed some light on aspects of our current problems.
In many respects this is a deeply philosophical explanation of money. He begins with the types and functions of money and its measurements of value. "When the free-exchange of goods and services in unknown, money is unwanted" he says. He does offer a simple definition before expanding into finer theory, "The function of money is to facilitate the business of the market by acting as a common medium of exchange."
There is good discussion on aspects of gold reserves and fiat currencies, and in particular commits a considerable portion of the book to defining the value of money. I particularly enjoyed reading about Von Mises perspective on how socialism is an "enemy" of money, when production and distribution are systematically regulated by a central body.
The banking section is very relevant to better understanding our current banking crisis. In this he admits that the Austrian School did not inquire thoroughly into what consequences follow unrestricted extensions of credit or whether it is possible for banks to permanently depress the natural rate of interest. Instead it was content to investigate what would happen if 1 country's banks extended the issue of fiduciary media more than banks in other countries; arriving at the doctrine of "external drain" relating to the English crisis of the mid-19th century.
Von Mises then relates "more recent history" (the book was published in 1934 and updated in 1953, he died in 1973) stating "banks have never gone as far as they might in extending credit and expanding the issue of fiduciary media. They have always left off long before reaching this limit, whether because of uneasiness or on the part of those who had not forgotten earlier crises, or because they had to defer to legislative regulations concerning maximum circulation....in only this sense we can interpret that it is apparently true that restriction of loans is the cause of economic crises, or at least their immediate impulse; that if banks would only go on reducing the rate of interest on loans they could continue to postpone the collapse of the market....Certainly the banks may postpone the collapse; but nevertheless the moment must eventually come when no further extension of the circulation of fiduciary media is possible. Then the catastrophe occurs, and its consequences are the worse and the reaction against the bull tendency of the market the stronger, the longer the period during which the rate of interest on loans has been below the natural rate of interest and the greater the extent to which roundabout processes of production that are not justified by the state of the capital market have been adopted."
The old-school perspective is very sober and refreshing. This book is laden with all kinds of historical gems, and there is an absolute treasure trove of references to primary source publications, many of which are out of print and yet obtainable. I found the history on the origin of money particularly insightful. The final section of the book deals with monetary restructuring and ideas relating to rebuilding a system of sound currency. Unfortunately I don't get the sense Obama's financial people have a clue regarding this.
I found it astounding to realize just how little I actually understood money and the banking system, and to realize that I am not alone and this relates to the majority of the global population. If you find yourself in this category, this may not be the first step, but it is essential reading. Books like "The Theory of Economic Development", "Bad Money", "The Mystery of Banking", "Web of Debt", and "The Creature from Jekyll Island" all have some negative points but are more user-friendly starts for the novice. Mises book gives the fine mechanical theories of these systems, and is sure to reward anyone who has studied money and banking or already has a working knowledge of the subject.
In any event this study provides an enlightened understanding of our current global economy, especially the risks and threats to our personal "wealth".
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- Reviewed in the United States on April 26, 2009
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Top reviews from other countries
- Nigel BarronReviewed in the United Kingdom on November 20, 2015
Good introduction to an interesting area of study
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Frank ReiboldReviewed in Germany on June 19, 2008
Österreichische Theorie der Geldpolitik
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Mr. Francois MarcognetReviewed in France on September 19, 2010
La théorie monétaire de Ludwig von Mises
