Understanding the Dollar Crisis

This book consists of a series of seven lectures given by Professor Greaves in the Argentine in 1969. Yet it forms, in effect, a rounded economics text. The titles of the lectures sufficiently indicate their contents: (1.) What Is Economics?, (2.) The Role of Value in Human Action, (3.) How Prices are Determined, (4.) The Effect of Wage Rate Interventions, (5.) The Theory of Money, (6.) The Causes of the 1929 Depression and (7.) The Evolution of the Present World Monetary Crisis.

There is a Foreword by the late Professor Ludwig von Mises. Percy Greaves has been for years a devoted student of Mises and does not profess to be doing much more than applying the principles of “Misesian” economics to some of the outstanding problems of our time. Yet, through his long years of study and thinking, he has made these ideas his own.

The first four lectures are almost purely theoretical. They lay the groundwork for the last three, which deal largely with recent economic developments and future prospects. In this arrangement Professor Greaves follows the practice of Böhm-Bawerk, the teacher of Mises, who once said: “I cannot profitably discuss the ‘practical’ side of the subject until there is complete clarity with respect to the theoretical side.”

Readers of Mises and Böhm-Bawerk will find few surprises in the early chapters on the nature of economics, the role of value and the determina-tion of prices. They will, however, find the exposition of the doctrines simple, clear and condensed.

The theory he expounds is essentially that of Mises, but his presentation is lucid and concise without being oversimplified. It is a quantity theory of money, in the sense that it recognizes that whenever the quantity of money is increased, other things being equal, the value of each unit tends to fall (as with any other economic good). But this is not the crude mechanical quantity theory of money (espoused today by the so-called monetarists) which holds that a given increase in the quantity of money will produce the same proportional increase in “average prices.” Greaves points out that the increases in commodity prices brought about by increases in the quantity of money are neither proportional nor uniform, nor do they occur all at the same time.

He exposes the fallacies in the idea that the value of money can somehow be kept constant by political manipulation. It is impossible in the nature of the case to maintain inflation indefinitely at a uniform rate. Inflation—the injection of new paper money into a society—can never provide more than, at best, a merely transitory stimulation. It adds no new wealth; it merely redistributes purchasing power and can help some groups only at the expense of others. Inflation is never necessary: “The quantity of money available in any society is always sufficient to perform for everybody all the functions that money can perform.” “A free market economy cannot permanently operate on a politically manipulated paper money standard. Free men need a market-selected money. Under present conditions, this means a gold standard.”

The present writer is often asked by correspondents in what book or books they can learn most about economics. I have told them that the Mt. Everest of modern texts is Ludwig von Mises’ Human Action, but I have had to warn them of the difficulties of the ascent, particularly for tyros. The problem has been to recommend a book or books that would most quickly prepare them to understand the Mises opus. I have often suggested Faustino Ballve’s little Essentials of Economics, which is excel-lent, but not long enough (126 pages). What has been lacking is a book of intermediate length to introduce readers to a full appreciation of the Misesian principles and insights. Professor Greaves’ book, among its other merits, admirably meets this need.

Reviewed by Henry Hazlitt / Economics (302 Pages, Indexed) / Bfl Price $7