Currency Manipulation — on Ludwig von Mises

Mises is the source of the argument the other two are drawing on. He had already made the case against Roosevelt’s monetary policy by 1934, and he spent the rest of his life explaining why the gold standard had been a restraint on governments rather than an obsolete restraint.

The argument

Economists who defended the gold standard in the 1930s generally argued that it was a piece of superstition that had outstayed its usefulness — governments needed freedom to manage their economies, and gold was the obstacle. Mises reversed this. In Human Action he conceded the premise his own side had been making for a century and then showed it was false.

All economists—including the author of this book—failed to realise the fact that it places in the hands of governments the power to manipulate their nations’ currency easily. Economists blithely assumed that no government of a civilised nation would use the gold exchange standard intentionally as an instrument of inflationary policy.
Ludwig von Mises, Human Action (1949), ch. 31

The inclusion of “the author of this book” in that sentence is unusual and worth sitting with. Mises had spent his career defending sound money, and here he is recording that he had got the politics of it wrong. What he had assumed was that a gold standard was a constraint because governments would choose to treat it as one.

1933 as the test case

Then he applied it to the United States, which gave him a clean natural experiment.

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.
Ludwig von Mises, Human Action (1949), ch. 31

The rhetorical move is worth noticing, because it is doing real work. “This fact did not stop the New Deal” states the conclusion first and the reason second: the policy was chosen in full view of the constraint, and the constraint’s existence was irrelevant to whether it would be used.

He had said so in 1934

This was not hindsight. Mises’s collected writings from 1934 include sustained criticism of the gold-buying programme and the Gold Reserve Act, written while the policy was new. On the Gold Reserve Act he noted how little discussion it received, and quoted an administration senator’s private explanation of what a gold certificate actually was.

Doctor, you don’t understand about these gold certificates. These are not certificates that you can get gold. These are certificates that gold has been taken away from you.
Ludwig von Mises, “The Gold Reserve Act of 1934,” in Economics and the Public Welfare, recounting a committee exchange

He described the dollar’s gold content being cut by roughly 41 percent as an act that was “by what some called an act of magic, but what was really an act of theft.”

A qualification worth making

Mises’s argument is that gold restrained governments. It does not follow that the 1930s would have been painless without it. He was not claiming the market clears quickly, or that no one suffered badly during the adjustment. He was claiming that the adjustment would have happened, and that preventing it was the costly decision. That is a narrower claim than “no New Deal, no hardship,” and it is the claim these essays actually rest on.

Works cited

Mises, Ludwig von. Human Action: Treatise on Economics (1949), ch. 31, “The Evolution of Modern Methods of Currency Manipulation.” mises.org, full text.
Mises, Ludwig von. Economics and the Public Welfare (1951), chs. 51–54, covering the gold-buying programme, the Gold Reserve Act and the Silver Purchase Act of 1934. mises.org.
Mises, Ludwig von. Omne Prole Offensum (1931), his first direct intervention on Roosevelt’s presidency.