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lowrentyieldmakessense(honest!)

The Last Knight Of Liberalism

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maybe soon the ideas of the inflationists will be in the dustbin

inflation is the enemy - and the bankers and their puppet politicians are the cause

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A Prophet Without Honor in His Own Land

The year was 1921. It was near midnight. Economist Ludwig von Mises was guiding some visitors through Vienna's dimly lit inner city. The city was asleep. All was quiet except for the sound of the men's muted conversation and the clop of their footsteps on the cobblestone streets. The men had just come from an economic conference where they had been discussing the disastrous effects of inflation.

Prices were rising rapidly in most of the countries of post — World War I Europe. Germany and Austria, especially, were facing hyperinflation. In Austria, the economy was in the doldrums. Large numbers of industrial firms were idle throughout the land, while others were working only part-time.

As the men approached the center of the city, the still of the night was broken by "the heavy drone of the Austro-Hungarian Bank's printing presses." Their Viennese host, Mises, explained that those presses "were running incessantly day and night, to produce new banknotes." Throughout the land, only the printing presses making banknotes were operating at full speed. "Let us hope," Mises told his guests, "that industry in Germany and Austria will once more regain its prewar volume and that war- and inflation-related industries, devoted specifically to the printing of notes, will give way to more useful activities."

Mises had been concerned about inflation even as a young man. After receiving his doctorate in 1906, he wrote a number of serious studies on money and banking. Former Austrian Minister of Finance Ernst von Plener, a leading economist, called Mises to his office one day to discuss one of Mises's papers. "I don't know why a young man like you is interested in inflation," Plener said. "True, inflation was a serious problem in the past. But," he went on, "all the civilized countries in the world are now on the gold standard. Can you imagine England, France, or Germany going off the gold standard?"

Ludwig, then only 26 years old, of medium height, serious, prim and proper, with a military bearing, was respectful. But he begged to differ. "I see a movement in those countries," Mises said, "that can't be called anything but 'inflationist.' The books of their economists express enthusiasm for inflation, even for unlimited inflation. Sooner or later, the ideas of those inflationist economists will influence public opinion. And that must lead to inflationist government policies. " Mises's anticipation was borne out during World War I when England, France, and Germany all went off the gold standard.

Mises served in the Austro-Hungarian cavalry on the eastern (Russian) front in World War I. When he returned to Vienna, he found that inflation had compounded the destitution of the people. Men and women who had worked and saved for decades discovered that the value of their pensions was evaporating; the savings of a lifetime could pay for only a few streetcar rides. Merchants could not replace inventories with the receipts from their sales. A shoe dealer, for instance, with an inventory of 10,000 pairs of shoes in 1914, saw his assets dwindle each year as the cost of shoes went up with the inflation; finally, his receipts from a year's sales could pay for only one pair of shoelaces.

"Men and women who had worked and saved for decades discovered that the value of their pensions was evaporating."

One Austrian émigré, who went to the United States before 1900 and became wealthy, bequeathed his fortune to establish an educational institution for orphans in Austria. Under Austrian law, the dollars had to be invested in Austrian government bonds until arrangements for the institution could be made. World War I intervened. By the end of the war, inflation had made the government bonds worthless, and nothing was left for the orphans.

Mises realized that inflation hurt some people at the expense of others. Those who were industrious, conscientious, and responsible, who worked hard and saved, were "losers," as the inflation eroded their savings. Those who borrowed to live beyond their means and spent lavishly were "winners," as they were able to repay their creditors with worthless paper money.

In 1922 Ignaz Seipel became Chancellor of Austria. Dr. Seipel, a Roman Catholic priest, honest and conscientious but naive about finance, was not the usual politician. Mises, by then a government adviser, and Wilhelm Rosenberg, a lawyer friend who was an expert in financial questions, convinced Seipel that for the good of the people, the printing of superfluous banknotes should be stopped.

"Mises realized that inflation hurt some people at the expense of others."

Then Mises realized Seipel expected that halting the inflation would bring prosperity right away. Mises didn't want to deceive Seipel. "Stopping the inflation will bring economic improvement in time," Mises told him. "But not immediately.… Its first effect will be to cause a 'stabilization crisis,' that will bring about serious, though short-run, economic hardship." Mises went on to explain why:

The people have come to expect ever-rising prices. They have adjusted to the inflation so far as they were able. Halting the flow of banknotes will come as a shock. Those who have anticipated further inflation will find their plans frustrated. Thus, the immediate effect of stopping the inflation will not be to benefit you and your political party. I [dare] say you will have serious difficulties.

Seipel interrupted. "But you say this is necessary — that this is the moral thing to do. If so, it doesn't matter. The party must do not only what is popular in the short run; it must also do what is best for the country." Thanks to Seipel, inflation was then brought to a halt in Austria in the fall of 1922, a year before Germany's catastrophic post — World War I inflation came to an end. And, in spite of the opposition of socialist opponents, Monsignor Seipel and his party won their next (October 1923) election.

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Seipel interrupted. "But you say this is necessary — that this is the moral thing to do. If so, it doesn't matter. The party must do not only what is popular in the short run; it must also do what is best for the country." Thanks to Seipel, inflation was then brought to a halt in Austria in the fall of 1922, a year before Germany's catastrophic post — World War I inflation came to an end. And, in spite of the opposition of socialist opponents, Monsignor Seipel and his party won their next (October 1923) election
.

I suppose this is the difference between politicians with a "moral compass" and our present corrupt government.

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