XXXI. Currency and Credit Manipulation

0:00Chapter 31 Currency and Credit Manipulation 1. The Government and the Currency Media of exchange and money are market phenomena. What makes a thing a medium of exchange or money is the conduct of parties to market transactions. An occasion for dealing with monetary problems appears to the authorities in the same way in which they concern themselves with all other objects exchanged, namely, when they are called upon to decide whether or not the failure of one of the parties to an act of exchange to comply with his contractual obligations justifies compulsion on the part of the government apparatus of violent oppression.

0:51If both parties discharge their mutual obligations instantly and synchronously, as a rule no conflicts arise which would induce one of the parties to apply to the judiciary. But if one or both parties' obligations are temporally deferred, it may happen that the courts are called to decide how the terms of the contract are to be complied with. If payment of a sum of money is involved, this implies the task of determining what meaning is to be attached to the monetary terms used in the contract. Thus it devolves upon the laws of the country and upon the courts to define what the parties to the contract had in mind when speaking of a sum of money, and to establish how the The obligation to pay such a sum is to be settled in accordance with the terms agreed upon.

1:49They have to determine what is and what is not legal tender. In attending to this task, the laws and the courts do not create money. A thing becomes money only by virtue of the fact that those exchanging commodities and services commonly use it as a medium of exchange. In the unhampered market economy, the laws and the judges, in attributing legal tender quality to a certain thing, merely establish what, according to the usages of trade, was intended by the parties when they referred in their deal to a definite kind of money. They interpret the customs of the trade in the same way in which they proceed when called to determine what is the meaning of any other terms used in contracts.

2:43Mintage has long been a prerogative of the rulers of the country. However, this government activity had originally no objective other than the stamping and certifying of weights and measures. The authority's stamp placed upon a piece of metal was supposed to certify its weight and fineness. Even later princes resorted to substituting baser and cheaper metals for a part of the precious metals while retaining the customary face and name of the coins. They did it furtively, and in full awareness of the fact that they were engaged in a fraudulent attempt to cheat the public. As soon as people found out these artifices, the debased coins were dealt with at a discount as against the old, better ones.

3:34The governments reacted by resorting to compulsion and coercion. They made it illegal to discriminate in trade and in the settlement of deferred payments between good money and bad money, and decreed maximum prices in terms of bad money. However, the result obtained was not that which the governments aimed at. Their decrees failed to stop the process which adjusted commodity prices in terms of the The history of government interference with currency is, however, not merely a record of debasement practices and of abortive attempts to avoid their inescapable catallactic consequences.

4:28There were governments that did not look upon their mintage prerogative as a means of cheating These governments considered the manufacturing of coins not as a source of surreptitious fiscal lucre, but as a public service designed to safeguard a smooth functioning of the market. But even these governments, out of ignorance and dilettantism, often resorted to measures which were tantamount to interference with the price structure, although they were not deliberately planned as such.

5:13As two precious metals were used side by side as money, the authorities naively believed that it was their task to unify the currency system by decreeing a rigid exchange ratio ratio between gold and silver. The bimetallic system proved a complete failure. It did not bring about bimetallism, but an alternating standard. That metal which, compared with the instantaneous state of the fluctuating market exchange rate between gold and silver, was overvalued in the legally fixed ratio, predominated in domestic circulation, while How the Other Metal Disappeared Finally the governments abandoned their vain attempts and acquiesced to mono-metalism.

6:03The present silver purchase policy of the American government is not seriously a device of monetary policy. It is merely a device for raising the price of silver for the benefit of the owners of of Silver Mines, Their Employees and the States within whose boundaries the mines are located. It is a hardly disguised subsidy. Its monetary significance consists exclusively in the fact that it is financed by issuing additional dollar notes whose legal tender quality does not differ essentially from that of the Federal Reserve notes, although they bear the practically meaningless imprint, Certificate Yet economic history also provides instances of well-designed and successful monetary policies on the part of governments whose only intention was to equip their countries with a smoothly working currency system.

7:05Laissez-faire liberalism did not abolish the traditional government prerogative of mintage. But in the hands of the liberal governments, the character of this state monopoly was completely altered. The ideas which considered it an instrument of interventionist policies were discarded. No longer was it used for fiscal purposes, or for favoring some groups of the people at the expense of other groups. The government's monetary activities aimed at one objective only, to facilitate and to To Simplify the Use of the Medium of Exchange Which the Conduct of the People Had Made Money A nation's currency system, it was agreed, should be sound.

7:51The principle of soundness meant that the standard coins, that is, those to which unlimited legal tender power was assigned by the laws, should be properly assayed and stamped bars and the use of bullion, coined in such a way as to make the detection of clipping, abrasion and counterfeiting easy. To the government stamp, no function was attributed other than to certify the weight and the fineness of the metal contained. Pieces worn by usage, or in any other way reduced in weight beyond the very narrow limits of tolerated allowance, lost their legal tender quality. The authorities themselves withdrew such pieces from circulation and reminted them.

8:39For the receiver of an undefaced coin, there was no need to resort to the scales and to the melting pot in order to know its weight and content. On the other hand, individuals were entitled to bring bullion to the mint and to have it transformed into standard coins, either free of charge, or against payment of a senior age, generally not surpassing the actual expenses of the process. Thus the various national currencies became genuine gold currencies. Stability in the exchange ratio between the domestic legal tender and that of all other Other countries which had adopted the same principles of sound money was thus brought about.

9:25The international gold standard came into being without intergovernmental treaties and institutions. In many countries, the emergence of the gold standard was affected by the operation of Gresham's Law. The role that government policies played in the process in Great Britain consisted merely in ratifying the results brought about by the operation of Gresham's Law. It transformed a de facto state of affairs into a legal state. In other countries, the governments deliberately abandoned bimetalism just at the moment when the change in the market ratio between gold and silver would have brought about a substitution of a de facto silver currency for the then prevailing de facto gold currency.

10:17With all these nations, the formal adoption of the gold standard required no other contribution on the part of the administration and the legislature than the enactment of laws. It was different in those countries which wanted to substitute the gold standard for or a de facto or de jure silver or paper currency. When the German Reich in the 70s of the 19th century wanted to adopt the gold standard, the nation's currency was silver. It could not realize its plan by simply imitating the procedure of those countries in which the enactment of the gold standard was merely a ratification of the actual state of affairs.

11:02It had to exchange the silver standard coins in the hands of the public against gold coins. This was a time-absorbing and complicated financial operation involving vast government purchases of gold and sales of silver. Conditions were similar in those countries which aimed at the substitution of gold for credit money or fiat money. It is important to realize these facts because they illustrate the difference between conditions as they prevailed in the liberal age and those prevailing today in the age of interventionism. 2. The Interventionist Aspect of Legal Tender Legislation The simplest and oldest variety of monetary interventionism is debasement of coins or For the sake of debt abatement.

12:01The authority assigns to the cheaper currency full legal tender power. All deferred payments can be legally discharged by payment of the amount due in the meaner coins according to their face value. Debtors are favored at the expense of creditors. But at the same time, future credit transactions are made more onerous for debtors. A tendency for gross market rates of interest to rise ensues as the parties take into account the chances for a repetition of such measures of debt abatement. While debt abatement improves the conditions of those who were already indebted at the at the moment, it impairs the position of those eager or obliged to contract new debts.

12:52The anti-type of debt abatement, debt aggravation through monetary measures, has also been practiced, though rarely. However, it has never deliberately been planned as a device to favor the creditors at the expense of the debtors. Whenever it came to pass, it was the unintentional effect of Monetary Changes Considered as Peremptory from Other Points of View. In resorting to such monetary changes, governments put up with their effects upon deferred payments either because they considered the measures unavoidable or because they assumed that creditors and debtors, in determining the terms of the contract, had already foreseen these changes and duly taken them into account.

13:42The best examples are provided by British events after the Napoleonic Wars and again after the First World War. In both instances, Great Britain sometime after the end of hostilities returned by means of a deflationary policy to the pre-war gold parity of the pound sterling. The idea of engineering the substitution of the gold standard for the wartime credit money Standard by acquiescing in the change in the market exchange ratio between the pound and gold which had already taken place, and of adopting this ratio as the new legal parity was rejected. This second alternative was scorned as a kind of national bankruptcy, as a partial repudiation of the public debt, and as a malicious infringement upon the rights of all those whose claims had originated in the period preceding the suspension of the unconditional convertibility of the banknotes of the Bank of England.

14:47People labored under the delusion that the evils caused by inflation could be cured by a subsequent deflation. Yet the return to the pre-war gold parity could not indemnify the creditors for the damage they had suffered as far as the debtors had repaid their old debts during the period of Money Depreciation. Moreover, it was a boon to all those who had lent during this period, and a blow to all those who had borrowed. But the statesmen who were responsible for the deflationary policy were not aware of the import of their action. They failed to see consequences which were, even in their eyes, undesirable, and if they They had recognized them in time, they would not have known how to avoid them.

15:38Their conduct of affairs really favored the creditors at the expense of the debtors, especially the holders of the government bonds at the expense of the taxpayers. In the 20s of the 19th century, it aggravated seriously the distress of British agriculture and a hundred years later the plight of British export trade. Nonetheless, it would be a mistake to call these two British monetary reforms the consummation of an interventionism intentionally aiming at debt aggravation. Debt aggravation was merely an attending phenomenon of a policy aiming at other ends. Whenever debt abatement is resorted to, its authors protest that the measure will never be repeated.

16:27They emphasize that extraordinary conditions, which will never again present themselves, have created an emergency, which makes indispensable recourse to noxious devices, absolutely reprehensible under any other circumstances. Once and never again, they declare. It is easy to conceive why the authors and supporters of debt abatement are compelled to make such promises. If total or partial nullification of the creditor's claims becomes a regular policy, lending of money will stop altogether. The stipulation of deferred payments depends on the expectation that no such nullification will be decreed.

17:13It is therefore not permissible to look upon debt abatement as a device of a system of economic policies which could be considered as an alternative to any other system of society's permanent economic organization. It is by no means a tool of constructive action. It is a bomb that destroys and can do nothing but destroy. If it is applied only once, a reconstruction of the shattered credit system is still possible. But if the blows are repeated, total destruction results. It is not correct to look upon inflation and deflation exclusively from the point of view of their effects upon deferred payments.

18:01It has been shown that cash-induced changes in purchasing power do not affect the prices Newspapers of the Various Commodities and Services at the Same Time and to the Same Extent, and what role this unevenness plays in the Market. But if one regards inflation and deflation as means of rearranging the relations between creditors and debtors, one cannot fail to realize that the ends sought by the Government resorting to them are attained only in a very imperfect degree, and that, besides, consequences appear which, from the government's point of view, are highly unsatisfactory. As is the case with every other variety of government interference with the price structure, the results obtained not only are contrary to the intentions of the government, but produce a state of affairs which, in the opinion of the government, is more undesirable than conditions on the Unhampered Market.

19:06As far as a government resorts to inflation in order to favor the debtors at the expense of the creditors, it succeeds only with regard to those deferred payments which were stipulated before. Inflation does not make it cheaper to contract new loans. It makes it, on the contrary, more expensive by the appearance of a positive price premium. If inflation is pushed to its ultimate consequences, it makes any stipulation of deferred payments in terms of the inflated currency cease altogether. 3. The Evolution of Modern Methods of Currency Manipulation A metallic currency is not subject to government manipulation.

19:58Of course, the government has the power to enact legal tender laws, but then the operation of Gresham's law brings about results which may frustrate the aims sought by the government. Seen from this point of view, a metallic standard appears as an obstacle to all attempts to interfere with the market phenomena by monetary policies. In examining the evolution which gave governments the power to manipulate their national currency systems, we must begin by mentioning one of the most serious shortcomings of the classical economists. Both Adam Smith and David Ricardo looked upon the costs involved in the preservation of a metallic currency as a waste.

20:45As they saw it, the substitution of paper money for metallic money would make it possible to Employ Capital and Labor Required for the Production of the Quantity of Gold and Silver Needed for Monetary Purposes for the Production of Goods Which Could Directly Satisfy Human Wants. Starting from this assumption, Ricardo elaborated his famous Proposals for an Economical and Secure Currency, first published in 1816. Ricardo's plan fell into oblivion. It was not until many decades after his death that several countries adopted its basic principles under the label gold exchange standard in order to reduce the alleged waste involved in the operation of the gold standard nowadays decried as classical or orthodox.

21:41Under the classical gold standard, a part of the cash holdings of individuals consists in gold coins. Under the gold exchange standard, the cash holdings of individuals consist entirely in money substitutes. These money substitutes are redeemable at the legal par in gold or foreign exchange of countries under the gold standard or the gold exchange standard. But the arrangement of monetary and banking institutions aims at preventing the public from withdrawing gold from the central bank for domestic cash holdings. The first objective of redemption is to secure the stability of foreign exchange rates.

22:26In dealing with the problems of the gold exchange standard, all economists, including the author of this book, failed to realize the fact that it places in the hands of governments the power to manipulate their nation's currency easily. Scientists blithely assumed that no government of a civilized nation would use the gold exchange standard intentionally as an instrument of inflationary policy. Of course, one must not exaggerate the role that the gold exchange standard played in the inflationary ventures of the last decades. The main factor was the pro-inflationary ideology. The gold exchange standard was merely a convenient vehicle for the realization of the Inflationary Plans. Its absence did not hinder the adoption of inflationary measures. The United States was in 1933 by and large still under the classical gold standard. This fact did not stop the New Deal's inflationism. The United States at one stroke by confiscating its citizens' gold holdings abolished the classical gold standard and devalued the dollar against gold.

23:44The new variety of the gold exchange standard, as it developed in the years between the First and Second World Wars, may be called the flexible gold exchange standard, or, for the sake of simplicity, the flexible standard. Under this system, the central bank, or the foreign exchange equalization account, or whatever the name of the equivalent governmental institution may be, freely exchanges the money Many substitutes which are the country's national legal tender, either against gold or against foreign exchange, and vice versa. The ratio at which these exchange deals are transacted is not invariably fixed, but subject to changes.

24:31The parity is flexible, as people say. This flexibility, however, is practically always a downward flexibility. The authorities used their power to lower the equivalence of the national currency in terms of gold and of those foreign currencies whose equivalence against gold did not drop. They never ventured to raise it. If the parity against another nation's currency was raised, the change was only the consummation of a drop that had occurred in that other currency's equivalence in terms of gold or

25:39in the International Appraisal of the Currency Concerned. In both cases, it is usual to refer to the event by declaring that the country concerned has raised the price of gold. The characterization of the flexible standard from the catallactic point of view must not be confused with its description from the legal point of view. The catallactic aspects of the issue are not affected by the constitutional problems involved. It is immaterial whether the power to alter the parity is vested in the legislative or in the administrative branch of the government. It is immaterial whether the authorization given to the administration is unlimited or, as was the case in the United States under New Deal legislation, limited by a terminal point beyond which the officers are not free to devalue further.

26:36What counts alone for the economic treatment of the matter is that the principle of flexible parities has been substituted for the principle of the rigid parity. Whatever the constitutional state of affairs may be, no government could embark upon raising the price of gold if public opinion were opposed to such a manipulation. If, on the other hand, public opinion favors such a step, no legal technicalities could check it altogether or even delay it for a short time. What happened in Great Britain in 1931, in the United States in 1933, and in France and Switzerland in 1936, clearly shows that the apparatus of representative government is One of the main objectives of currency devaluation, whether large-scale or small-scale, is, as will be shown in the next section, to rearrange foreign trade conditions.

27:53These effects upon foreign trade make it impossible for a small nation to take its own course in currency manipulation, irrespective of what those countries are doing with whom its trade relations are closest. Such nations are forced to follow in the wake of a foreign country's monetary policies. As far as monetary policy is concerned, they voluntarily become satellites of a foreign power. By keeping their own country's currency rigidly at par against the currency of a monetary suzerain country, they follow all the alterations which the suzerain brings about in its own currency's parity against gold and the other nation's currencies.

28:41They join a monetary block and integrate their country into a monetary area. The most talked about block or area is the sterling block or area. The flexible standard must not be confused with conditions in those countries in which the government has merely proclaimed an official parity of its domestic currency against gold and foreign exchange without making this parity effective. The characteristic feature of the flexible standard is that any amount of domestic money Many substitutes can, in fact, be freely exchanged at the parity chosen against gold or foreign exchange and vice versa.

29:27At this parity, the central bank, or whatever the name of the government agency entrusted with the task may be, freely buys and sells any amount of domestic currency and of foreign currency of at least one of those countries which themselves are either under the gold Standard or under the Flexible Standard. The domestic banknotes are really redeemable. In the absence of this essential feature of the Flexible Standard, decrees proclaiming a definite parity have a quite different meaning and bring about quite different effects. 4. The Objectives of Currency Devaluation The flexible standard is an instrument for the engineering of inflation.

30:20The only reason for its acceptance was to make reiterated inflationary moves technically as simple as possible for the authorities. In the boom period that ended in 1929, labor unions had succeeded in almost all countries in enforcing wage rates higher than those which the market, if manipulated only by migration Barriers would have determined. These wage rates already produced in many countries institutional unemployment of a considerable amount, while credit expansion was still going on at an accelerated pace. When finally the inescapable depression came and commodity prices began to drop, the labor unions, firmly supported by the governments, even by those disparaged as anti-labor clung stubbornly to their high-wages policy. They either flatly denied permission for any cut in nominal wage rates or conceded only in sufficient cuts. The result was a tremendous increase in institutional unemployment. On the other hand, those workers who retained their jobs improved their standard of living as their hourly real wages went up.

31:41The burden of unemployment doles became unbearable. The millions of unemployed were a serious menace to domestic peace. The industrial countries were haunted by the specter of revolution. But union leaders were intractable, and no statesmen had the courage to challenge them openly. In this plight, the frightened rulers bethought themselves of a makeshift long since recommended by inflationist doctrinaires. As unions objected to an adjustment of wages to the state of the money relation and commodity prices, they chose to adjust the money relation and commodity prices to the height of wage rates. As they saw it, it was not wage rates that were too high.

32:29Their own nation's monetary unit was overvalued in terms of gold and foreign exchange and had to be readjusted. devaluation was the panacea. The objectives of devaluation were, one, to preserve the height of nominal wage rates or even to create the conditions required for their further increase, while real wage rates should rather sink. Two, to make commodity prices, especially the prices of farm products, rise in terms of Domestic Money, or at least to check their further drop, to favor the debtors at the expense of the creditors, to encourage exports and to reduce imports, to attract more foreign tourists and to make it more expensive in terms of domestic money for the country's

33:58They spoke of the necessity of lowering domestic costs of production, but they were anxious not to mention that one of the two cost items they expected to lower by devaluation was real wage rates, the other being interest stipulated on long-term business debts and the principle of such debts. It is impossible to take seriously the arguments advanced in favor of devaluation. They were utterly confused and contradictory. For devaluation was not a policy that originated from a cool weighing of the pros and cons. It was a capitulation of governments to union leaders who did not want to lose face by admitting In justifying that their wage policy had failed and had produced institutional unemployment on an unprecedented scale, it was a desperate makeshift of weak and inept statesmen who were motivated by their wish to prolong their tenure of office.

35:03In justifying their policy, these demagogues did not bother about contradictions. They promised the processing industries and the farmers that devaluation would make prices rise, but at the same time they promised the consumers that rigid price control would prevent any increase in the cost of living. After all, the governments could still excuse their conduct by referring to the fact that under the given state of public opinion, entirely under the sway of the doctrinal fallacies of labor unionism, no other policy could be resorted to. No such excuse can be advanced for those authors who hailed the flexibility of foreign exchange rates as the perfect and most desirable monetary system.

35:53While governments were still anxious to emphasize that devaluation was an emergency measure not to be repeated again, these authors proclaimed the flexible standard as the most appropriate Monetary System, and were eager to demonstrate the alleged evils inherent in stability of foreign exchange rates. In their blind zeal to please the governments and the powerful pressure groups of unionized labor and farming, they overstated tremendously the case of flexible parities. But the drawbacks of standard flexibility became manifest very soon. The enthusiasm for devaluation vanished quickly. In the years of the Second World War, hardly more than a decade after the day when Great Britain had set the pattern for the flexible standard, even Lord Keynes and his adepts discovered that stability of foreign exchange rates has its merits.

36:54One of the avowed objectives of the International Monetary Fund is to stabilize foreign exchange rates. If one looks at devaluation not with the eyes of an apologist of government and union policies, but with the eyes of an economist, one must first of all stress the point that all its alleged blessings are temporary only. Moreover, they depend on the condition that only one country devalues, while the other countries abstain from devaluing their own currencies. If the other countries devalue in the same proportion, no changes in foreign trade appear. If they devalue to a greater extent, all these transitory blessings, whatever they may be, favor them exclusively.

37:45A general acceptance of the principles of the flexible standard must therefore result in a mutual overbidding between the nations. At the end of this race is the complete destruction of all nations monetary systems. The much talked about advantages which devaluation secures in foreign trade and tourism are entirely due to the fact that the adjustment of domestic prices and wage rates to the state of affairs created by devaluation requires some time. As long as this adjustment process is not yet completed, exporting is encouraged and importing is discouraged. However, this merely means that in this interval the citizens of the devaluing country are getting less for what they are selling abroad and paying more for what they are buying abroad.

38:42Concomitantly they must restrict their consumption. This effect may appear as a boon in the opinion of those for whom the balance of trade is the yardstick of a nation's welfare. In plain language, it is to be described in this way. The British citizen must export more British goods in order to buy that quantity of tea which he received before the devaluation for a smaller quantity of exported British goods. The devaluation, say its champions, reduces the burden of debts. This is certainly true. It favors debtors at the expense of creditors. In the eyes of those who still have not learned that under modern conditions the creditors must not be identified with the rich, nor the debtors with the poor, this is beneficial.

39:37The actual effect is that the indebted owners of real estate and farmland and the shareholders of indebted corporations are helped to the disadvantage of the enormous majority whose savings are invested in bonds, debentures, saving bank deposits and insurance policies. There are also foreign loans to be considered. When Great Britain, the United States, France, Switzerland and some other European creditor Under countries devalued their currencies, they made a gift to their foreign debtors. One of the main arguments advanced in favor of the flexible standard is that it lowers the rate of interest on the domestic money market.

40:23Under the classical gold standard and the rigid gold exchange standard, it is said, a country must adjust the domestic rate of interest to conditions on the international money market. Under the flexible standard, it is free to follow in the determination of interest rates, a policy exclusively guided by considerations of its own domestic welfare. The argument is obviously untenable with regard to those countries in which the total amount of debts to foreign countries exceeds the total amount of loans granted to foreign countries. In the course of the 19th century, some of these debtor nations adopted a sound money policy. Their firms and citizens could contract foreign debts in terms of their national currency.

41:15This opportunity disappeared altogether with the change in these countries' monetary policies. No American banker would contract a loan in Italian lira or try to float an issue of lira bonds. As far as foreign credits are concerned, no change in a debtor country's domestic currency conditions can be of any avail. As far as domestic credits are concerned, devaluation abates only the already previously contracted debts. It enhances the gross market rate of interest of new debts as it makes a positive price premium appear. This is valid also with regard to interest rate conditions in the creditor nations.

42:01There is no need to add anything to the demonstration that interest is not a monetary phenomenon and cannot in the long run be affected by monetary measures. It is true that the devaluations which were resorted to by various governments between 1931 and 1938 made real wage rates drop in some countries and thus reduced the amount of institutional unemployment. The historian in dealing with these devaluations may therefore say that they were a success as they prevented a revolutionary upheaval of the daily increasing masses of unemployed and as, under the prevailing ideological conditions, no other means could be resorted to in this critical situation.

42:53But the historian will no less have to add that the remedy did not affect the root causes of institutional unemployment, the faulty tenets of labor unionism. Devaluation was a cunning device to elude the sway of the union doctrine. worked because it did not impair the prestige of unionism. But precisely because it left the popularity of unionism untouched, it could work only for a short time. Union leaders learned to distinguish between nominal wage rates and real wage rates. Today, their policy aims at raising real wage rates. They can no longer be cheated by a drop in the monetary unit's purchasing power.

43:43Devaluation has worn out its usefulness as a device for reducing institutional unemployment. Cognizance of these facts provides a key for a correct appraisal of the role which Lord Keynes' doctrines played in the years between the First and Second World Wars. Mises did not add any new idea to the body of inflationist fallacies, a thousand times refuted by economists. His teachings were even more contradictory and inconsistent than those of his predecessors, who like Silvio Gassel, were dismissed as monetary cranks. He merely knew how to cloak the plea for inflation and credit expansion in the sophisticated terminology of mathematical economics.

44:33The interventionist writers were at a loss to advance plausible arguments in favor of the policy of reckless spending. They simply could not find a case against the economic theorem concerning institutional unemployment. In this juncture, they greeted the Keynesian Revolution with the verses of Wordsworth. Bliss was it in that dawn to be alive, but to be young was very heaven. It was, however, a short run heaven only. We may admit that for the British and American governments in the 30s, no way was left other than that of currency devaluation, inflation and credit expansion, unbalanced budgets and deficit spending.

45:20Governments cannot free themselves from the pressure of public opinion. They cannot rebel against the preponderance of generally accepted ideologies, however fallacious. But this does not excuse the officeholders who could resign rather than carry out policies disastrous for the country. Still less does it excuse authors who tried to provide a would-be scientific justification for the crudest of all popular fallacies, namely inflationism.