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.Everyone, businessmen as well as economists, considered creditexpansion necessary and they became very angry if somebody tried to saythat it might have some drawbacks.At the end of the nineteenth century,it was considered practically indecent to support the British CurrencySchool, which was opposed to credit expansion.When I started to study the theory of money and credit I found in thewhole world of literature only one living author, a Swedish economist,Knut Wicksell [1851 1926], who really saw the problems in credit expan-sion.4 The idea prevails even today that we cannot do without creditexpansion.It will be impossible, without a very serious struggle whichreally has to be fought, to defeat all those ideological forces that are oper-ating in favor of credit expansion.Most people, of course, don t give anythought to credit expansion.But the governments have a very clear ideaabout it they say, We can t do without it.Credit expansion is fundamentally really a problem of civil rights.Representative government is based on the principle that the citizensneed to pay to the government only those taxes that have been legallypromulgated in a constitutional way:  No taxation without representa-tion. However, governments believe they cannot ask their citizens to payas much in taxes as is needed to cover the whole of governmentexpenditures.When governments cannot cover their expenses out oflegally enacted taxes, they borrow from the commercial banks and soexpand credit.Therefore, representative government can actually be theinstigator of credit expansion and inflation.4 [Knut Wicksell, Interest and Prices (New York: Macmillan, [1898] 1936). Ed.]If the institution of credit expansion and other types of governmentinflation had been invented in the seventeenth century the history of thestruggle of the Stuarts with the British Parliament would have been verydifferent.Charles I [1600 1649] wouldn t have had any problems in gettingthe money he needed if he could simply have ordered the Bank ofEngland, which didn t exist in his time, to grant him credit.He would thenhave been in a position to organize an army of the King and to defeatParliament.This is only one aspect.The second aspect I don t believe that this country could standpsychologically a recurrence of a crisis like that of 1929.And the only wayto avoid such a crisis is by preventing the boom.We are already very faralong in this boom, but we could still stop it in time.However, there is agreat danger.While capital goods are limited in amount and are scarce andwould, therefore, limit those projects which can be executed and makemany projects appear impossible for the time being, credit expansion canhide by the illusion of an increase in the capital reported in dollars on thebooks.Credit expansion creates the illusion of available capital, while infact there is not.The fundamental problem of the nineteenth century was that peopledidn t realize these things.As a result, capitalism was very much discredited,for people believed that the almost periodic occurrence of depressionswas a phenomenon of capitalism.Marx and his followers expected thedepressions to get progressively worse, and Stalin still says openly every day: We have only to wait.There will be a very bad crisis in the capitalistcountries. If we want to thwart these plans we must realize that soundcredit policies acknowledge the fact that there is a scarcity of capital goods,that capital cannot simply be increased by credit expansion.This mustcome to be recognized by our businessmen and politicians.* * * *[Additional comments by Mises during the question-and-answer period.]What happened in the past with credit expansion has been, by andlarge, absorbed and adjusted to by the market.I would say, take as  giventhe conditions as they have happened in the past, and say only that forthe future there should be no more credit expansion.In the future noadditional banknotes should be issued, no additional credit should beentered on a bank account subject to check, unless there is 100 percentcoverage in money.This is the 100-percent plan.With respect to today ssituation, we should leave everything that has happened in the past alonewe should not attempt to reverse it because that would be deflationary.Deflation is not as dangerous, not as bad, as inflation.Deflation isexpensive for the government, while inflation is profitable for the govern-ment.But deflation, too, must be avoided.If there hadn t been any privileged banks and if government had notforced citizens to take the banknotes by making them  legal tender,banknotes would never have become popular.The average citizen today inevery country of the world, with the exception of the most backwardcountries, considers as money every scrap of paper upon which thegovernment or an institution privileged by the government has printed themagic words  legal tender. But it was different in the past.It was not easyto make people accept banknotes.They took them because the banknoteswere better than nothing.If a person didn t want the banknotes hecould take them back to the bank that issued them; and if the bankcouldn t redeem them the bank went broke.The  wonderful thing aboutgovernment-issued banknotes, from the point of view of the governmentand the banks, is that the bank is not required to redeem them, exceptperhaps in legal tender money, which is again banknotes.If the governments had never interfered with money and banking, itwould be possible to leave every citizen free to issue his own banknotes.Iwant to give everybody the right to issue his own banknotes.The problemthen would be to get other men to accept such private banknotes; maybenobody will take them.I am not against banknotes as such; I am onlyagainst banknotes that are protected by some government privilege.I wantthe banknotes issued in the past to retain their privilege, but no more legaltender banknotes and no more credit expansion!If I say that the return to the gold standard is necessary it isbecause it makes inflation impossible.Under the gold standard the amountof money depends on geological factors that cannot be controlled by thegovernment.It is not an unreasonable standard because it is the onlyalternative to making money completely dependent on the government.If King Charles I [1600 1649] had had the power to print paper moneyhe would probably have been in a much better position in his fight againstthe government.Under the gold standard, the supply of money is independent of thechanging whims and political programs of governments and politicalparties.For centuries there were struggles on the part of the predecessorsof our parliamentary bodies against the princes who wanted to debasethe currency.The princes said,  What counts is only the name which Igive to money. But their silver money got a  red face when the princesadulterated it with copper, all the while declaring that their new alloyedmoney, which contained less silver than the old money, still had the samepurchasing power and the same legal tender power as the old money.If thegovernment is in a position to provide for some of its expenditures bycreating money, it no longer needs to depend, let us say, on Congress.Historically and politically the gold standard is an implement in the systemof legislation that limits the power of government and makes governmentdependent on the will of the people [ Pobierz całość w formacie PDF ]