FORTY years have passed since the first German-language edition of this volume was published. In the course of these four decades the world has gone through many disasters and catastrophes. The policies that brought about these unfortunate events have also affected the nations' currency systems. Sound money gave way to progressively depreciating fiat money. All countries are today vexed by inflation and threatened by the gloomy prospect of a complete breakdown of their currencies.
There is need to realize the fact that the present state of the world and especially the present state of monetary affairs are the necessary consequences of the application of the doctrines that have got hold of the minds of our contemporaries. The great inflations of our age are not acts of God. They are man-made or, to say it bluntly, government-made. They are the off-shoots of doctrines that ascribe to governments the magic power of creating wealth out of nothing and of making people happy by raising the 'national income'.
One of the main tasks of economics is to explode the basic inflationary fallacy that confused the thinking of authors and statesmen from the days of John Law down to those of Lord Keynes. There cannot be any question of monetary reconstruction and economic recovery as long as such fables as that of the blessings of 'expansionism' form an integral part of official doctrine and guide the economic policies of the nations.
None of the arguments that economics advances against the inflationist and expansionist doctrine is likely to impress demagogues. For the demagogue does not bother about the remoter consequences of his policies. He chooses inflation and credit expansion although he knows that the boom they create is short-lived and must inevitably end in a slump. He may even boast of his neglect of the long-run effects. In the long run, he repeats, we are all dead; it is only the short run that counts.
But the question is, how long will the short run last? It seems that statesmen and politicians have considerably over-rated the duration of the short run. The correct diagnosis of the present state of affairs is this: We have outlived the short run and have now to face the long-run consequences that political parties have refused to take into account. Events turned out precisely as sound economics, decried as orthodox by the neo-inflationist school, had prognosticated.
In this situation an optimist may hope that the nations will be prepared to learn what they blithely disregarded only a short time ago. It is this optimistic expectation that prompted the publishers to re-publish this book and the author to add to it as an epilogue an essay on monetary reconstruction.
Source: Ludwig von Mises, "Theory of Money and Credit", 1953, pp. 9-10
This excerpt is a Preface to the new edition of the book "The Theory of Money and Credit". There are two other Prefaces. Ludwig von Mises wrote this on June 1952. In it, he was describing an event that was true in 1912. That's 102 years far away from our time. The immediate question that comes to mind is what's the connection of that 1912 event to our situation in 2014? That's not an easy question. To find the answer, reading this 500-page book is a must.
Mises was describing that from 1912 to 1952, "many disasters and catasthrophes" had happened to humanity. These disasters and catasthrophes had originated from economic policies that impacted not only the German currency, but the currencies of all nations. Those of us who are not familiar with monetary system, and have been used to fiat currency since the day of our birth might think that Mises was just dreaming to aspire for the recovery of sound money. In fact, it is us who are dreaming, and we have been sleeping for so long thinking that nothing is wrong with our monetary system. Soon we will wake up. I just do not know when. The only thing I know is that our awakening will only happen when we can no longer endure the pain of sleeping, that is, when our existing monetary system will purchase products and services less and less though the nominal value of our salary is increasing.
Mises was referring to monetary inflation. The disaster brought by this monetary policy is "man-made", to be exact, it is "government-made". The government does it by printing money out of thin air. This is magic.
This is why basic knowledge of economics is a necessity. If reputable book authors and statesmen could be confused, what would you expect from an average citizen? Remember that the path to monetary reconstruction and economic recovery will never take place unless the economic policies of nations are altered. And these policies will never change unless citizens are economically informed. Expect that demagogues will do their best to hinder the path to recovery. They enjoy watching you lying on your bed.