science

The Theory of Money and Credit

The Theory of Money and Credit is a science topic covered in the lgStudy science library. This page brings together a partial reference excerpt, illustrations, worked examples, real-world applications and a short study plan, so you can understand The Theory of Money and Credit rather than just read about it. In short: The Theory of Money and Credit is a 1912 economics book written by Ludwig von Mises, originally published in German as Theorie des Geldes und der Umlaufsmittel. It features the earliest statement of Mises's business cycle theory.

Key takeaways

The Theory of Money and Credit belongs to science; place it in that map before memorising details.
Learn the definition first, then one example that makes the definition concrete.
Connect The Theory of Money and Credit to a quantity you can measure, compute or draw — that is where exam questions come from.
Reproduce the core statement of The Theory of Money and Credit from memory before moving on to harder problems.

Reference excerpt

The Theory of Money and Credit is a 1912 economics book written by Ludwig von Mises, originally published in German as Theorie des Geldes und der Umlaufsmittel. It features the earliest statement of Mises's business cycle theory. The book also includes the first exposition of Mises's regression theorem, which aimed to explain the purchasing power of money using the subjective marginal utility theory of value, an accomplishment which has been argued to have reunited the microeconomic and macroeconomic spheres. The book also details Mises's views on the origins of money, on the gold standard, on the forms and functions of money, and on the role of the State and of the banking system with regard to money. The Theory of Money and Credit is one of the foundational works of the Misesian branch of the Austrian School of economic thought. Murray Rothbard considered The Theory of Money and Credit to be one of the four major works of Mises's career, alongside Socialism (1922), Human Action (1949), and Theory and History (1957).

Applications Along with Carl Menger's Principles of Economics, and Eugen von Böhm-Bawerk's Capital and Interest, the book is one of the foundational works of the Austrian School.

Publication history 1912: Vienna: Theorie des Geldes und der Umlaufsmittel. 1924: 2nd edition in German. 1934: London: Jonathan Cape Ltd. First translation (by Harold E. Batson) into English. The German word Umlaufsmittel literally translates as "means of circulation" and was translated into the text of the English version as "fiduciary media". However, the publisher thought the unusual terminology would irritate readers and substituted "money and credit" in the title, thereby losing the specific distinction Mises had made in selecting his original term. 1953: New Haven, Conn.: Yale University Press. Part Four was added by Mises to this English language edition 1971: Irvington-on-Hudson, N.Y.: Foundation for Economic Education. 1978: Irvington-on-Hudson, N.Y.: Foundation for Economic Education. 1981: Indianapolis,. Ind. Liberty Fund. ISBN 0-913966-70-3. 541 pages. Hardcover. (Softcover ISBN 0-913966-71-1). 2009: Auburn, Al. Ludwig von Mises Institute. Hardcover

Criticism According to Michael Hendricks, "the regression theorem does a good job of explaining the creation of money, however it does not necessarily apply to all forms of money."

References

External links The Theory of Money and Credit, 1953 edition: Full text in HTML The Theory of Money and Credit, 2009 edition: Full text in PDF Foreword to the 1981 Edition by Murray Rothbard

Worked examples

Example 1 — a first encounter with The Theory of Money and Credit

Start with the simplest possible case. Write down what The Theory of Money and Credit claims or describes in one sentence, then invent the smallest concrete situation in which that sentence is true. In science, the smallest case is usually a single object, a single equation or a single measurement. Check that every symbol or term in your sentence has a meaning in that case.

Example 2 — changing one variable

Take the situation from Example 1 and change exactly one quantity: double it, halve it, or set it to zero. Predict what should happen to The Theory of Money and Credit before you calculate. Comparing your prediction with the result is the fastest way to find out whether you understand the idea or only the words.

Example 3 — an exam-style question

Typical questions about The Theory of Money and Credit ask you to (a) state it precisely, (b) apply it to given data, and (c) explain a limitation. Practise writing all three answers in under five minutes; the third part is what separates a full-mark answer from an average one.

Applications of The Theory of Money and Credit

In research: The Theory of Money and Credit appears in science research whenever the underlying quantities have to be modelled precisely. Papers usually cite it as a starting assumption and then explore where it breaks down.
In technology and industry: Engineering practice reuses The Theory of Money and Credit in design rules, simulations and safety margins. Knowing the idea lets you read a specification sheet and understand why the numbers look the way they do.
In the classroom: The Theory of Money and Credit is common in secondary-school and first-year university syllabi. It links to neighbouring topics 1912 non-fiction books, Books by Ludwig von Mises, Economics and finance book stubs, so understanding it makes those chapters shorter.
In everyday life: Look for The Theory of Money and Credit outside the textbook — in sport, cooking, traffic, electronics or the sky above you. An example you found yourself is remembered far longer than one you were given.

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How to study The Theory of Money and Credit in 20 minutes

Read the reference excerpt below once, without taking notes.
Close the page and write down what The Theory of Money and Credit means in your own words.
Compare your version with the excerpt and mark what you missed.
Work through the three examples above with pen and paper.
Explain The Theory of Money and Credit out loud to somebody else — or to Teacher Smith in the lgStudy chat.

Frequently asked questions

What is The Theory of Money and Credit in simple terms?

Why does The Theory of Money and Credit matter?

Because it connects several science ideas at once: it gives you a definition you can apply, a quantity you can calculate, and a way to check whether a result is plausible.

How should I study The Theory of Money and Credit?

Read the excerpt, restate it from memory, then work through the examples and applications listed on this page. The five-step study plan above takes about twenty minutes.

What does this page cover?

It gives you a compact reference excerpt plus original lgStudy explanations, examples, applications and study material on The Theory of Money and Credit.