War and the Money Machine: Concealing the Costs of War beneath the Veil of Inflation

The true costs of the war lie in the goods sphere: the usedup goods, the devastation of parts of the country, the loss of manpower, these are the real costs of war to the economies.

The costs of war are enormous, as the above quotations trenchantly indicate, and inflation is a means by which governments attempt, more or less successfully, to hide these costs from their citizens.

Section 3 analyzes the reasons why different methods of war financing will have different effects on the public's perceptions of the costs attending economic mobilization for war.

As Mises observes, this is one form that capital consumption took in Germany during the First World War: "The German economy entered the war with an abundant stock of raw materials and semi-finished goods of all kinds. In peacetime, whatever of these stocks were devoted to use or consumption was regularly replaced. During the war the stocks were consumed without being able to be replaced. They disappeared out of the economy; the national wealth was reduced by their value." These future or higher-stage goods permanently "Disappeared" because the resources previously invested in their reproduction had been withdrawn in order to augment the production of war materials.

Why if strictly fiscal measures are capable of yielding sufficient revenues to pay market prices for all the resources required to conduct war, have belligerent governments almost always had recourse to the methods of monetary inflation and the direct commandeering of commodities and services? The answer lies in the fact that war is an extremely costly enterprise and the latter two methods, although in very different ways, operate to partially conceal these costs from the public's view.

To grasp how the issuing of new money obscures and distorts the true costs of war, we first must analyze the case of financing a war exclusively through the imposition of increased taxes supplemented with borrowing from the public.

Finally, it is worth emphasizing that the characterization of monetary inflation as a means for obscuring the real costs of war is an inference from strictly value-free economic theory and, as such, does not logically imply the value judgment that war ought to be financed by noninflationary fiscal methods.

https://mises.org/library/war-and-money-machine-concealing-costs-war-beneath-veil-inflation