Inflation and Stabilization 
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y B 
supply is regulated with the special object of 
keeping the value of the currency on a certain par 
with gold. When this is truly understood, it is 
immediately realized that a gold standard is ex- 
posed to inflation in the same manner as a paper 
standard, and that without a strict limitation of 
the supply of means of payment, no guarantee for 
stability can be given by anything we are accus- 
tomed to look upon as ‘‘gold cover.’’ 
If we start from the elementary idea that the 
value of the monetary unit is always determined 
by the total supply of means of payment repre- 
senting this unit, we are able to present the gen- 
eral theory of inflation in a very simple form. 
Inflation begins with an arbitrary increase in the 
supply of means of payment. It does not matter 
what form this increase takes. During the War 
some governments simply caused the central bank 
to print more notes and put them at their dis- 
posal in the form of advances. Other governments 
preferred to issue big loans and even resorted to 
the means of imposing high taxes. But in so far as 
the buyers of government bonds or the taxpayers 
had to use bank credits for their payments, and 
bank credits were arbitrarily extended in order 
to facilitate such payments, the effect was the 
same. In all cases a nominal purchasing power was