My 116 favorite quotes from “Money: Sound and Unsoud”

Yorick de Mombynes
Oct 19 · 17 min read

Originally published on 15 October 2019 as as tweetstorm.

Money: Sound and Unsoud (2015), by Joseph.T. Salerno : available in free PDF and on Amazon.


1. “The idea of sound money was present from the very beginning of modern monetary theory in the works of the 16th-century Spanish Scholastics who argued against debasement of the coinage by the king on ethical and economic grounds”

2. “It was Fisher and not Keynes who was the true founder of modern macroeconomics with its aggregative reasoning and its central notion of politically managed fiat money”

3. “Monetarism was nothing more than Fisher’s stable money principle supported by a seemingly more sophisticated version of the quantity theory of money restated in Keynesian terminology”

4. “By the end of World War Two, the Austrian School had been forgotten and the sound money doctrine was in danger of falling into oblivion until it was revived in the early 1960s by Rothbard, Mises’s leading American follower”

5. “The doctrine of sound money, with Austrian monetary and business cycle theory at its core, has continued to flourish and grow and has emerged as the main challenger to the collapsing Keynesian spending paradigm”

6. “I have become much more skeptical about whether the U.S., or any other, government can competently and honestly manage a transition to a genuine gold standard”

7. “Rothbard argued that the boom-bust cycle that culminated in the Great Depression was initiated by the inflationary policy pursued by the Fed during the 1920s”

Chapter 1 : Two Traditions in Modern Monetary Theory: John Law and A.R.J. Turgot

8. “The neo-Keynesians, monetarists, and supply-siders, differ among themselves in important areas of theory and policy, but all share most of Law’s fundamental ideas about money”

9. “By treating money as some sort of social measuring rod for value, what Law and the monetarists ignore is the fact that money’s use as a medium of exchange is precisely what precludes it from possessing an invariant market value”

10. “A medium of exchange possessing a fixed purchasing power is a self-contradictory concept”

11. “The cornerstone of Law’s scheme for monetary reform is a monopolistic money-issuing institution which resembles a modern central bank”

12. “In his brief contributions to monetary theory, Turgot set out for the first time the basic outlines of a tradition of monetary analysis which is represented in the U.S. today by the resurgent Austrian school of economics”

13. “Turgot flatly rejects Law’s primary contention that money is merely an exchange token, whose supply must be manipulated by the political authorities in order to achieve selected policy goals”

14. “Turgot concludes that money is not a creation of law or of human convention, but is the product of a natural market process”

15. “With his focus on money as the most marketable among all exchangeable goods, Turgot conceives the demand for money in the modern sense of the demand to acquire and hold a stock of cash to employ in future exchanges”

16. “As Turgot points out, all that results from inflating the supply of money is a fall in the purchasing power of the monetary unit and a corresponding rise of the scale of prices in the economy”

17. “For Turgot and modern Austrians it is not the mild fluctuations in the price level which would occur under a full-bodied gold standard but the attempt to endow money with a chimerical neutrality that leads to disorderly money and a discoordinated economy”

18. “In sharp contrast to Law and modern proponents of managed money, Turgot is an implacable foe of fractional-reserve banking”

19. “Turgot’s staunch opposition to fractional-reserve banking places him squarely in the mainstream of 18th-century monetary thought, which can be interpreted as a reaction against Law’s writings and schemes”

20. “Turgot’s influence was transmitted to modern Austrians primarily via Carl Menger, the nin19th-century co-discoverer of marginal utility theory and founder of the Austrian School of economics”

21. “Menger’s most important contribution to monetary theory was the development of a rigorous theoretical explanation of the catallactic origin of money, the germ of which is to be found in Turgot’s brilliant insight that money is not created from outside the market”

22. “For Mises and Rothbard, the only sure route to eventually denationalizing the money supply is to redefine the existing fiat monetary unit as a specific weight of gold, the market-chosen medium of exchange”

23. “In the Austrian view, a price deflation, far from being an antisocial event to be feared and fought via the printing of monopoly fiat money, is the market’s response to an increase in the social demand for money”

24. “In the Austrian view, the market economy owes its existence and success not to money’s alleged role in insuring macro-stability, but to its usefulness as a tool enabling market participants to interpret and adjust to the change that pervades human life and action”

25. “There is no possibility of ever truly “stabilizing” any economic quantity, without falsifying or abolishing monetary calculation and undermining or destroying the market economy”

Chapter 2 : Ludwig von Mises’s Monetary Theory in Light of Modern Monetary Thought

26. “Mises’s regression theorem goes beyond Menger in demonstrating that, logically, money can only come into being as a product of voluntary catallactic processes”

27. “Mises pioneered in the early 20th-century revival of the purchasing-power-parity (PPP) theory of exchange rates and in the formulation of what is now known as the “asset market” view of the influence of expectations on the formation of the exchange rate”

Chapter 3 : The “True” Money Supply: A Measure of the Supply of the Medium of Exchange in the U.S. Economy

28. “As the general medium of exchange, money is a good that is universally and routinely accepted in exchange by market participants; or, put another way, it is the one good that is traded for all other goods on the market”

Chapter 4 : A Simple Model of the Theory of Money Prices

Chapter 5 : International Monetary Theory

29. “Austrian analysis of the determination of the exchange rate between two independent moneys is based on the purchasing power parity theory as it was first formulated by Mises in 1912, four years before Gustav Cassel published the first of his many statements of it”

Chapter 6 : Ludwig von Mises and the Monetary Approach to the Balance of Payments: Comment on Yeager

30. “Mises anticipated the monetary approach to the exchange rate, both in his pathbreaking explanation of the purchasing-power-parity theory (which predated Cassel) and also in his integration of expectations into the explanation of short-run exchange-rate movements”

Chapter 7 : The Concept of Coordination in Austrian Macroeconomics

Chapter 8 : Ludwig Von Mises on Inflation and Expectations

31. “Among Ludwig von Mises’s most important contributions to monetary theory are his sophisticated analyses of the social consequences of inflation and of the formation and evolution of inflationary expectations”

32. “Mises originated the argument that inflation causes a falsification of capital accounting that leads to an overstatement of profits and brings about unintended consumption of the social stock of capital”

33. “What Mises clearly regarded as the most important effect of inflation is the permanent redistribution of income and wealth that results from the sequential and uneven adjustment of prices to an addition to the stock of money”

34. “Unlike the Chicago price theorists, Mises and the Misesian wing of the modern Austrian school do not believe that the market economy is ever at, or even within sight of, long-run general equilibrium”

Chapter 9 : War and the Money Machine: Concealing the Costs of War Beneath the Veil of Inflation

35. “The costs of war are enormous and inflation is a means by which governments attempt, more or less successfully, to hide these costs from their citizens”

36. “Inflation constitutes the first step on the road to the fascist economic planning that is typically foisted upon capitalist economies in the course of a large-scale war”

37. “Within days of the outbreak of World War I each and every one of the belligerent governments suspended the operation of the gold standard, effectively arrogating to itself the monopoly of the supply of money in its own national territory”

38. “While the effects of monetary inflation on economic calculation are not as manifestly devastating as outright socialization — at least initially — it, nonetheless, operates insidiously to falsify profit and capital calculations”

39. “A depreciating monetary unit is a permanent feature of the war economy”

40. “Monetary inflation is the crucial first step in the process by which government seeks to conceal from its citizen-subjects the enormous costs associated with war, particularly the progressive destruction of the nation’s productive wealth”

41. “The inflationary process is indispensable for masking the capital decumulation crisis precipitated by war mobilization, which would otherwise be swiftly revealed to one and all by monetary calculation”

Chapter 10 : An Austrian Taxonomy of Deflation — With Applications to the U.S.

42. “Because modern macroeconomics was born of John Maynard Keynes’s obsessive deflation-phobia, academic macroeconomists are the most likely of all to be muddled about deflation”

43. “Before World War II, when the terms “inflation” and “deflation” were used in academic discourse or everyday speech, they generally meant an increase or a decrease in the stock of money, respectively”

44. “Historically, the natural tendency in the industrial market economy under a commodity money such as gold was for general prices to persistently decline as accumulation of capital and advances in industrial techniques led to a continual expansion in the supplies of goods”

45. “Hayek’s argument clearly explains why a monopoly central bank in a fiat money regime is never likely to choose a contractionary monetary policy and why, especially under current conditions, fear of deflation is completely groundless”

46. “A mildly deflationary monetary policy is far less dangerous in the long run than the mildly inflationary policy of “inflation targeting” recommended by a consensus of contemporary economists”

47. “While blithely ignoring coercive political expropriation of the public’s bank deposits, deflation-phobes exhibit an obsessive and misplaced concern with voluntary, market-driven deflation”

48. “The most numerous and vociferous group of contemporary deflation-phobes consists of the financial journalists, economic consultants, market pundits and conservative think-tank policy wonks who are more or less closely linked with supply-side economics”

49. “The market economy does not operate to assure that the supply will always vary to perfectly satisfy demand at a price that is previously fixed once and for all. And it is just so for the money supply”

Chapter 11 : Comment on Tullock’s “Why Austrians Are Wrong About Depressions”

50. “The main insight of Austrian cycle theory is that the inflationary boom induces “malinvestment,” which denotes a diversion of scarce factors and money capital away from consumer-goods industries into capital-goods or, more generally, “higher-stage” industries”

Chapter 12 : The 100 Percent Gold Standard: A Proposal for Monetary Reform

51. “Despite its newfound respectability, the gold standard remains shrouded in an almost impenetrable fog of myths, which were concocted during the Keynesian revolution”

52. “The fundamental reason for preferring the 100 percent gold standard to other gold-based proposals for monetary reform is that it is the only monetary system which effects the complete separation of the government from the supply of money”

53. “In removing all vestiges of the government monopoly over money, the pure commodity standard provides a practically inflation-proof currency”

54. “Inflation occurs for no other reason than that it benefits that group or institution — in almost every case the national government — which succeeds in arrogating to itself the legal monopoly over money creation”

55. “An individual or group endowed with a legal monopoly over any area of the economy will use it to its own best advantage. (…) Government is an inherently inflationary institution and will ever remain so until it is dispossessed of its monopoly of the supply of money”

56. “Aside from any theoretical objections to monetarism, its policy prescriptions completely fail to address the radical (in the etymological sense of “root”) cause of inflation in the modern world, viz., the governmental monopolies of the money-supply process”

57. “The monetarist “quantity rule” is not an anti-inflation policy at all, but merely the enunciation of a request that the political authorities exercise restraint in exploiting their monopoly, which, under the monetarist program, would remain virtually intact”

58. “The virtue of the 100 percent gold standard is that it establishes a free market in the supply of money and brings about a complete abolition of the governmental monopoly in this most sensitive and vital area of the market economy”

59. “While almost any type of a gold standard will yield a far less inflationary monetary system than the present regime of national fiat currencies, all but the 100 percent gold standard ascribe a greater or lesser role to the political authorities in their operation”

60. “Although it is, of course, possible for the government to engineer an inflationary transformation of the 100 percent gold standard, it is much more difficult than in the case of other gold-based systems”

61. “Under a pure commodity standard every stage of the money-supply process from mining to banking is in private hands”

62. “While increases in the supplies of the various nonmonetary goods in the economy augment the satisfaction of human wants — directly in the case of consumers’ goods and indirectly in the case of producers’ goods — the same cannot be said of an increase in the supply of money”

63. “Every attempt to “stabilize the price level” through governmental monetary policy inevitably distorts the free-market pattern of relative prices and leads to a destabilization of the entire economy through business cycles”

64. “Under a gold standard, the supply of money does not change arbitrarily but varies directly with monetary demand, resulting in a tendency to long-run stability in the purchasing power of gold”

65. “A gold money, even when adulterated with elements of fiduciary media — uncovered bank notes and deposits and government fiat currency — and subject to a variety of government interventions, has maintained great stability in its purchasing power over the long run”

66. “Under a genuine gold standard, national currencies do not exist as separate and distinct entities apart from gold”

Chapter 13 : Gold Standards: True and False

67. “Strictly speaking, the advocate of hard money does not favor a gold standard per se, but endorses whatever commodity is chosen by the market as the general medium of exchange”

68. “The hard-money program tends to be couched in terms of the gold standard because gold represents the money that emerged in the past from a natural selection process of the free market that spanned centuries”

69. “Under the quintessential hard-money regime, the money-supply process is totally privatized. The mining, minting, certification, and warehousing of the commodity money are undertaken by private firms competing for profits in an entirely unrestricted and unregulated market”

Chapter 14 : The Gold Standard: An Analysis of Some Recent Proposals

70. “Ever fearful of arousing popular unrest, governments have naturally sought alternative means for augmenting their revenues from taxation. It was for this purpose that all national governments eventually secured for themselves a legal monopoly of issuing money”

71. “To grant to a government institution, such as a central bank, a powerful influence over the operation of the gold standard is not unlike proffering the fox an invitation to guard the chicken coop. This is surely the lesson taught by the broad sweep of monetary history”

72. “The sad fact is that the public, who ultimately determines what is and what is not money, has grown accustomed to governmental fiat money and, as a result, is unlikely to undertake spontaneously the actions necessary to create de novo a parallel commodity money”

73. “The only sure method for restoring a free-market commodity money necessarily involves once again legally defining the monetary name already in use as some definite unit of weight of the former money-commodity”

74. “The road to long-term monetary stability leads ultimately to the complete abolition of the government monopoly of issuing money and, concomitantly, to the return of the function of supplying money to the free market”

Chapter 15 : The International Gold Standard: A New Perspective

Chapter 16 : Money and Gold in the 1920s and 1930s: An Austrian View

Chapter 17 : Inflation and Money: A Reply to Timberlake

75. “Rothbard and the Austrians object to the definition of inflation as a general rise in the CPI or GDP deflator because this definition obscures the relative changes within the price structure caused by an expansion of the money supply”

Chapter 18 : A Monetary Explanation of the October Stock Market Crash: An Essay In Applied Austrian Economics

76. “The aim of preventing stock-market crashes can be attained only by successfully preventing monetary inflation”

Chapter 19 : Beyond Calculational Chaos: Sound Money and the Quest for Capitalism and Freedom in Ex-Communist Europe

77. “In the absence of money, there are no economic quantities and no economic calculation. This insight is the foundation of the classical doctrine of sound money”

78. “Money is unsound to the extent that it promotes calculational chaos by falsifying entrepreneurial price appraisements and profit calculations and causing a systematic misallocation of monetary investment and production factors”

79. “A sound money is simply one that does not lead to systematic falsification or nullification of economic calculation”

80. “The sound money program is not an unattainable ideal but one that can be realized by totally separating the money supply process from the State”

81. “Historically, the classical gold coin standard provided a sound money: the natural and unalterable scarcity of gold completely precluded hyperinflation as well as rigidly limiting the extent to which fractional-reserve banks could expand fiduciary media”

82. “A completely sound monetary policy would require not only the abolition of fiat currency and central banking, but also the strict prohibition of fractional-reserve banking”

83. “Sound money is a praxeologically attainable and historically attained ideal; it requires only that the government be restrained from intervening in the market’s money supply process and that standard contract law be rigorously applied to the banking sphere”

84. “The sole aim of the sound money program is the preservation of monetary calculation from distortion by extra-market forces”

85. “Because money is a tangible commodity that is traded on the market, it is endowed with its own variable supply and demand, and therefore its “price” or purchasing power can never be rendered constant or stable”

86. “The purchasing power of money is simply the unaveraged series of exchange ratios constituted by the reciprocals of all realized money prices in the economy”

87. “What both the money stabilizers (monetarists) and neutralizers (free bankers) have in common is their strongly-held, but profoundly erroneous, belief that money, when it is functioning properly, exists in hermetically-sealed isolation from real economic processes”

88. “The proponents of stable and of neutral money fail to comprehend that the market determines both the general level of prices and the complex structure of their interrelationships as part of one and the same pricing process”

89. “The proper metaphor to aid in conceptualizing changes in the purchasing power of money is not a homogeneous body of water smoothly changing its level but of a bee swarm rising and falling, even as the relative positions of the individual bees are continually being modified”

90. “Money, by its very nature as the general medium of exchange, is bought and sold on all markets and is therefore subject to continual and ineradicable fluctuations of its value”

91. “The goals of stable money and neutral money are both fundamentally inconsistent with the preservation of the integrity of monetary calculation”

Chapter 20 : Preventing Currency Crises: The Currency Board Versus the Currency Principle

92. “The Neo-Currency School theory of currency crises developed in the 1930s sheds valuable light on the likely performance of currency boards in emerging market economies”

Chapter 21 : Greenspan’s Empty Talk

93. “Alan Greenspan, in his tenure as Fed Chairman, has succeeded in misleading almost everyone, including many economic journalists and professional economists, into accepting a bizarre and idiosyncratic view of the business cycle”

94. “Throughout his career as Fed chairman, Greenspan has relentlessly propagated the view that the business cycle is a mysterious phenomenon, the result of imponderable forces operating deep within the market economy and inaccessible to human reason”

95. “Economic growth is a deflationary force and not an inflationary force”

96. “The deflationary influence of economic growth on prices can disguise the distortional effect of a rapid expansion of the money supply on the economy”

97. “The Austrian explanation of the boom-and-bust, or business, cycle fits to a tee the experience of the U.S. economy in the 1990s”

Chapter 22 : Did Greenspan Deserve Support for Another Term?

98. “The Fed’s performance has been astoundingly bad throughout Greenspan’s tenure as chairman. (…) Perhaps worse, Greenspan has been a relentless purveyor of economic fallacies designed to obscure and justify this egregious performance”

99. “Astonishingly, the media-fueled cult of Chairman Greenspan continued throughout the 1990s even though some of the most celebrated pseudo-profundities that he uttered represented blatant reversals of views he had expressed just months earlier”

Chapter 23 : The Role of Gold in the Great Depression: A Critique of Monetarists and Keynesians

100. “The monetary freedom represented by the gold standard, along with many other freedoms of the classical liberal era, was brought to a calamitous end by World War One”

101. “The gold standard did not disappear overnight, but limped along in weakened form into the early 1930s”

102. “Governments and commercial banks under the gold standard did not have much influence over the money supply in the long run”

103. “The only sizable inflations that occurred during the 19th century did so during wartime when almost all belligerent nations would “go off the gold standard.” They did so in order to conceal the staggering costs of war from their citizens by printing money”

104. “Unfortunately, contemporary economists and economic historians do not grasp the fundamental difference between the hard-money classical gold standard of the 19th century and the inflationary phony gold standard of the 1920s”

105. “A gold standard functions much better without a central bank, because these institutions, as creatures of politics, are inherently inflationary and tend to promote rather than restrain the inflationary propensities of the fractional-reserve commercial banks”

106. “Under a genuine gold coin standard, the choices of private households and firms effectively control the money supply”

107. “If a central bank does exist and it wishes to act in accordance with a genuine gold standard, it should always “sterilize” gold inflows by issuing additional notes and deposits only on the basis of 100% gold reserves and insisting that the commercial banks do the same”

108. “The genuine gold standard did not fail in the 1920s, because it had already been destroyed by government policies after 1914”

109. “The monetary system that sowed the seeds of the Great Depression in the 1920s was a central-bank-manipulated and inflationary pseudo-gold standard. It was central banking that failed in the 1920s and should stand discredited today as the cause of the Great Depression”

110. “The U.S. money supply, properly defined, increased from 1921 to 1928 at the annual rate of 7 percent per year, a rate of monetary inflation that was unseen under the classical gold standard”

111. “During the 1920s the Fed, far from operating as the deflationary force on the money supply portrayed by some monetarists, increased the categories of bank reserves within its control at the annual rate of 18 percent per year”

112. “From 1929 to 1932 the Fed continued to exert a highly inflationary influence on the money supply, as it feverishly pumped new reserves into the banking system in a vain attempt to ward off the cyclical downturn entailed by its own earlier inflation of the money supply”

Chapter 24 : Comment on A Tale of Two Dollars: Currency Competition and the Return to Gold, 1865–1879

113. “The theory of the evolution of money as formulated by Carl Menger and later refined by Ludwig von Mises and Murray Rothbard tells us that the general medium of exchange originated on the market as the most saleable commodity in the pre-existing state of barter”

114. “Currency competition can only emerge out of an evolutionary market process and cannot be implemented in one fell swoop by legal fiat or by a private entrepreneurial scheme”

Chapter 25 : Money Matters No More?

115. “Austrians since Menger have considered money’s function as the unit of account as another derivative function of the general medium of exchange”

Chapter 26 : Deflation and Depression: Where’s the Link?

116. “The long-held view that a general fall in prices, or increase in the value of money, whatever its origin, spells unmitigated disaster for overall economic activity and social welfare has begun slowly to give way to attempts to distinguish between “good” and “bad” deflation”

Yorick de Mombynes

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