The story, as it goes, is that Ludwig von Mises, who was the finance minister of Austria at a time of great financial crisis, was approached by the bureaucrats about the rampant inflation that was infecting society. They sought his wisdom and help in alleviating the problem and he agreed. But he agreed with a condition. The condition was that at midnight they were to meet him at a place of his choosing and the bureaucrats, so distressed over the near collapse of the economy, did agree.
At midnight the meeting came and von Mises stood on the street corner listening to the industrial thump echoing through the streets. The bureaucrats then arrived and begged him again now that they had done as he asked if he would tell them how to solve the problem. Von Mises asked if they heard the same insistent thumping that he did. They said they heard it and groveled before him yet again for the answer to their problems.
He then informed them that the sound itself was the problem for it was the sound of the printing presses churching out worthless money. Mises told them that if they stopped that sound then they would solve the problem. Even today this lesson holds true.
This story goes hand in hand with an old economic joke. One day the people decide that leaves would make excellent currency because trees were scarce and there was a limited supply of leaves. Everyone had one tree and was shown how to take care of it so that it would produce the accepted currency in sufficient amounts. This was done so that each citizen could get what they needed to survive. Everything went swimmingly well with this system for a time with everyone using leaves from their own and well cared for tree as currency to buy everything they needed. But then one day one of the citizens came riding into town on his tractor pulling cart after cart after cart full of leaves.
The people were stunned for his wealth was so great! And they marveled at how many leaves he had been able to harvest from his single tree. When asked how he did it the citizen replied, “Oh, these? No, these are not from my tree. I’ve been saving up my leaves and I bought this tractor and these carts because a year ago I discovered a forest fifty miles south of here. Now I can harvest all the leaves I want and attain great wealth.” Soon however everyone was buying tractors and carts, driving to the south and returning with more leaves than had ever been seen. The result was that the cost of everything went up and up because along with there being more leaves it now took more leaves to buy anything someone wanted.
In other words, the leaf worked well as currency except for when the forest was discovered and the supply of leaves was inflated.
Both of these tales have lessons to be learned and that can be applied to the actions of our government today. We think that just because we can print money that we should print money. Our bureaucrats and politicians believe that if more dollars are simply put into the system by government mandate that everything will be ok. That is why they just earmarked hundreds of billions of dollars that do not exist for all sorts of loosely defined projects in what they referred to as the Stimulus Plan. They poofed dollars into existence and are now working to spend them as fast as they can be printed hoping that the basic and universal laws of economics will not apply and be universal this time around. If worse comes to worse they will just mandate that the basic laws of economics will not apply.
I can only imagine how they would have reacted to being told that the printing presses were the problem by von Mises and that the only way to solve the problem was to end the sound heard on that street corner. It is possible that they might have agreed and ceased the senseless printing of worthless paper. But judging by their recent actions it is even more probable that they would have considered von Mises a kook and just kept on doing what they were doing anyway. But on the off chance that they would have agreed that the problem was indeed the sound of the printing presses, let us continue the first story with an ending to suit it shall we?
We revisit our hapless bureaucrats, wringing their hands before von Mises on the street corner. They accept that he is right and they agree to silence the machines. Von Mises thinking he has gotten through to them smiles and wishes them a good day. Within a day, the streets at night no longer ring with the sounds of the presses. But to von Mises surprise the problem does not resolve as inflation is still on the rise and he ponders his own judgment. Surely, he thinks, that the universal laws of economics have not been suspended.
Then a year later the bureaucrats angrily come knocking on his door. They shout and demand answers from him because they have silenced the sound of the printing presses but nothing has gotten any better. They call him a fraud!
“Calm down,” von Mises urges. “Something is not right here. You have silenced the presses have you not?”
“Yes!” the crowd shouts in unison.
Then von Mises understands what the problem may be and probes deeper. “How did you do that? Did you do that by actually stopping the machines themselves?” The gaggle of bureaucrats begins to look at one another and murmur at the question. The confused looks in their eyes tells von Mises that there is something they are not telling him.
Finally, one of the bureaucrats sheepishly answers, “Well, not exactly.”
“What do you mean, ‘not exactly?’ I do not hear the presses when I walk the streets at night anymore.”
“Well, the truth be told,” the bureaucrat explains, “we just crafted a bill that appropriated five million of the freshly printed dollars for pillows and we then strapped all those pillows to the side of the mint to soundproof the building.”
Disgusted by their own idiocy, von Mises then slumps into the chair and mutters something unintelligible about idiots and how scum always floats to the top. Meanwhile the bureaucrats and politicians keep looking at him wondering why the problem has not been solved.
You think I am joking? You think this is far fetched and paints those in Washington as more imbecilic than they are? You have not been paying attention lately then have you?