The Theory of Money and Credit

Ludwig von Mises.
Mises, Ludwig von
(1881-1973)
CEE
Display paragraphs in this book containing:
Editor/Trans.
H. E. Batson, trans.
First Pub. Date
1912
Publisher/Edition
Indianapolis, IN: Liberty Fund, Inc.
LibertyClassics
Pub. Date
1981
Comments
Foreword by Murray Rothbard and Introduction by Lionel Robbins not available online

Notes to the Electronic Edition:

* The Library of Economics and Liberty electronic edition is taken from that translated by H. E. Batson, published by Liberty Fund, 1980; © 1980 by Bettina Bien Greaves. Footnote references in the text are color coded according to authorship as follows:

14* Mises's original notes, color-coded blue in the text, are unbracketed and unlabeled in the footnote file. Also color-coded blue and unbracketed are notes in sections written by others: Batson's Appendix B, the Foreward, and Introduction.
14* [Batson's notes, color-coded gold in the text, are bracketed in the footnote file, and initialed H.E.B.]
* Occasional website (Library of Economics and Liberty) Editor's notes, color-coded red in the text, are unbracketed and indicated by asterisks without numbers in the text.

Frontmatter

1. The English translation of Menger's Grundsätze only first appeared in 1950. See Carl Menger, Principles of Economics (New York: New York University Press, 1981).

2. The first complete English translation of the third/fourth German edition, by George D. Hunke and Hans F. Sennholz, was published by Libertarian Press, South Holland, III., in 1959; it includes: Volume I, History and Critique of Interest Theories; Volume II, Positive Theory of Capital; and Volume III, Further Essays on Capital and Interest.

3. Except for one minor change of tense. In the second edition, the author prefaced the first major division of the last chapter of part three with a note to the effect that this section was to be read as referring to the time about 1912, when it was originally written. In the present edition, in order to prevent certain misunderstandings that seemed possible even if this note had been reprinted in its proper place on p. 406, certain practices and circumstances (especially in sections 4 to 8) have been described in the past tense. (Cf. pp. 406 n. z, 416 n., and also 429 n.)

4. See Altmann, "Zur deutschen Geldlehre des 19. Jahrhunderts," in Die Entwicklung der deutschen Volkswirtschaftslehre im 19. Jahrhundert, Schmoller Festschrift (Leipzig, 1908).

5. See Döring, Die Geldtheorien seit Knapp, 1st ed. (Greifswald, 1921; 2d ed. Greifswald, 1922); Palyi, Der Streit um die Staatliche Theorie des Geldes (Munich and Leipzig, 1922) (also in Schmoller's Jahrbuch, 45. Jahrgang). Also see the acute investigations of G. M. Verrijn Stuart, Inleiding tot de Leer der Waardevastheid van het Geld ('s Gravenhage, 1919).

Part I, Chapter 1

1. See Wicksell, Über Wert, Kapital und Rente (Jena, 1893; London, 1933), pp. 50 f.

2. The conclusion that indirect exchange is necessary in the majority of cases is extremely obvious. As we should expect, it is among the earliest discoveries of economics. We find it clearly expressed in the famous fragment of the Pandects of Paulus: "Quia non semper nec facile concurrebat, ut, cum tu haberas, quod ego desiderarem, invicem haberem, quod tu accipere velles" (Paulus, lib. 33 ad edictum 1.I pr. D. de contr. empt. 18, I).

Schumpeter is surely mistaken in thinking that the necessity for money can be proved solely from the assumption of indirect exchange (see his Wesen und Hauptinhalt der theoretischen Nationalökonomie [Leipzig, 1908], pp. 273 ff.). On this point, cf. Weiss, Die moderne Tendenz in der Lehre vom Geldwert, Zeitschrift für Volkswirtschaft, Sozialpolitik und Verwaltung, vol. 19, pp. 518 ff.

3. See Menger, Untersuchungen über die Methode der Sozialwissenschaften und der politischen Okonomie insbesondere (Leipzig, 1883), pp. 172 ff.; Grundsätze der Volkswirtschaftslehre, 2d ed. (Vienna, 1923), pp. 247 ff.

4. See Menger, Grundsätze, pp. 278 ff.

5. See Nicholson, A Treatise on Money and Essays on Present Monetary Problems (Edinburgh, 1888), pp. 22 ff.; Laughlin, The Principles of Money (London, 1903), pp. 22 f.

6. Cf. Menger, Grundsätze, pp. 284 ff.

7. That is, apart from the exceptional propensity to hoard gold, silver, and foreign bills, encouraged by inflation and the laws enacted to further it.

8. Knies in particular (Geld und Kredit, 2d ed. [Berlin, 1885], vol. 1, pp. 233 ff.) has laid stress upon the function of money as interlocal transmitter of value.

9. Cf. Menger, Grundsätze, pp. 282 f.

Part I, Chapter 2

10. See Simmel, Philosophie des Geldes, 2d ed. (Leipzig, 1907), p. 35; Schumpeter, Wesen und Hauptinhalt der theoretischen Nationalökonomie (Leipzig, 1908), p. 50.

11. Cf. Böhm-Bawerk, "Grundzüge der Theorie des wirtschaftlichen Güterwertes," Jahrbücher für Nationalökonomie und Statistik (1886), New Series, vol. 13, p. 48.

12. See Cuhel, Zur Lehre von den Bedürfnissen (Innsbruck, 1906), pp. 186 ff.; Weiss, Die moderne Tendenz in der Lehre vom Geldwert, Zeitschrift für Volkswirtschaft, Sozialpolitik und Verwaltung, vol. 19, pp. 532 ff. In the last edition of his masterpiece Capital and Interest, revised by himself, Böhm-Bawerk endeavored to refute Cuhel's criticism, but did not succeed in putting forward any new considerations that could help toward a solution of the problem (see Kapital und Kapitalzins, 3d ed. [Innsbruck, 1909-12], pp. 331 ff. Exkurse, pp. 280 ff.).

13. See Fisher,Mathematical Investigations in the Theory of Value and Prices, Transactions of the Connecticut Academy (New Haven, 1892), vol. 9, pp. 14 ff.

14. See also Weiss, op. cit., p. 538.

15. Cf. Schumpeter,op. cit., p. 290.

16. Cf. further Weiss,op. cit., pp. 534 ff.

17. See also Clark, Essentials of Economic Theory (New York, 1907), p. 41. In the first German edition of the present work, the above argument contained two further sentences that summarized in an inadequate fashion the results of investigation into the problem of total value. In deference to certain criticisms of C. A. Verrijn Stuart (Die Grundlagen der Volkswirtschaft [Jena, 1923], p. 115), they were omitted from the second edition.

18. On the indispensability of money for economic calculation, see my book Die Gemeinwirtschaft: Untersuchungen über den Sozialismus(Jena, 1922), pp. 100 ff.

19. [This chapter deals with technical matters which may present difficulty to readers unacquainted with general economic theory. It may be omitted on a first reading, but it is essential to complete understanding of certain issues, such as the index-number problem, which are dealt with later.—Editor.]

Part I, Chapter 3

20. See Böhm-Bawerk, Rechte und Verhältnisse (Innsbruck, 1881), pp. 120 ff.

21. Wagner, Beiträge zur Lehre von den Banken (Leipzig, 1857), pp. 34 ff.

22. For instance, Helfferich, Das Geld, 6th ed. (Leipzig, 1923), pp. 267 ff.; English trans., Money (London, 1927), pp. 284 ff.

23. See Laughlin, The Principles of Money (London, 1903), pp. 516 ff.

24. See Kalkmann, Englands Übergang zur Goldwährung im 18. Jahrhundert (Strassburg, 1895), pp. 64 ff.; Schmoller, "Über die Ausbildung einer richtigen Scheidemünzpolitik vom 14. bis zum 19. Jahrhundert," Jahrbuch für Gesetzgebung, Verwaltung und Volkswirtschaft im Deutschen Reich 24 (1900): 1247-74; Helfferich, Studien über Geld und Bankwessen (Berlin, 1900), pp. 1-37.

25. On the concepts of commodity money, credit money, and fiat money, see sec. 3 of this chap.

26. On the nature of token coinage, see Say, Cours complet d'économie politique pratique, 3d ed. (Paris, 1852), vol, 1, p. 408; and Wagner, Theoretische Sozialökonomik (Leipzig, 1909), Part II pp. 504 ff. Very instructive discussions are to be found in the memoranda and debates that preceded the Belgian Token Coinage Act of 1860. In the memorandum of Pirmez, the nature of modern convertible token coins is characterized as follows: "With this property (of convertibility) the coins are no longer merely coins; they become claims, promises to pay. The holder no longer has a mere property right to the coin itself [jus in re]; he has a claim against the state to the amount of the nominal value of the coin [jus ad rem], a right which he can exercise at any moment by demanding its conversion. Token coins cease to be money and become a credit instrument [une institution de crédit], banknotes inscribed on pieces of metal ..." (see Loi décrétant la fabrication d'une monnaie d'appoint ... précédée des notes sur la monnaie de billon en Belgique ainsi que la discussion de la loi à la Chambre des Représentants [Brussels, 1860], p. 50).

27. The silver gulden in Austria-Hungary held the same position as the silver thaler in Germany from 1873 to 1907. It was legal tender, but economically a claim to money, since the bank-of-issue in fact always cashed it on demand.

28. See my articles "Das Problem gesetzlicher Aufnahme der Barzahlungen in Österreich-Ungarn," Jahrbuch für Gesetzgebung, Verwaltung und Volkswirtschaft im Deutschen Reich 33 (1909): 985-1037; "Zum Problem gesetzlicher Aufnahme der Barzahlungen in Österreich-Ungarn," ibid. 34 (1910): 1877-84; "The Foreign Exchange Policy of the Austro-Hungarian Bank," Economic Journal 19 (1909): 202-11; "Das vierte Privilegium der Österreichisch-Ungarischen Bank," Zeitschrift für Volkswirtschaft, Sozialpolitik und Verwaltung 21 (1922): 611-24.

29. See esp. Hammer, Die Hauptprinzipien des Geld-und Währungswesens und die Lösung der Valutafrage (Vienna, 1891), pp. 7 ff.; Gesell, Die Anpassung des Geldes und seiner Verwaltung an die Bedürfnisse des modernen Verkehres (Buenos Aires, 1897), pp. 21 ff.; Knapp, Staatliche Theorie des Geldes, 3d ed. (Munich, 1921), pp. 20 ff.

30. See Luschin, Allgemeine Münzkunde und Geldgeschichte des Mittelalters und der neureren Zeit (Munich, 1904), P. 215; Babelon, La théorie féodale de la monnaie (Extrait des mémoires de l'Académie des Inscriptions et Belles-Lettres, vol. 38, Part I [Paris, 1908], p. 35).

31. For important references, see Babelon, op. cit., p. 35.

32. See Seidler, "Die Schwankungen des Geldwertes und die juristische Lehre von dem Inhalt der Geldschulden," Jahrbücher für Nationalökonomie und Statistik (1894), 3d. Series, vol. 7, p. 688.

33. For earlier conditions in Russia, see Gelesnoff, Grundzüge der Volkswirtschaftslehre, trans. into German by Altschul (Leipzig, 1918), p. 357.

34. See Luschin, op. cit., pp. 221 f.

35. Ibid., p. 155; Endemann, Studien in der romanisch-kanonistischen Wirtschafts-und Rechtslehre bis gegen Ende des 17. Jahrhunderts (Berlin, 1874), vol. 1, pp. 180 ff.

36. Chevalier, Cours d'économie politique, III., La monnaie (Paris, 1850), pp. 21 ff; Goldschmidt, Handbuch des Handelsrechts (Erlangen, 1868), vol. 1, Part II, pp. 1073 ff.

Part I, Chapter 4

37. Knapp, Staatliche Theorie des Geldes (3d. ed., 1921); trans. into English by H. M. Lucas and J. Bonar as The State Théory of Money (London, 1924).

38. See Helfferich, Das Geld, 6th ed. (Leipzig, 1923), p. 294; English trans., Money (London, 1927), p. 312.

39. See Helfferich, Die Reform des deutschen Geldwesens nach der Gründung des Reiches (Leipzig, 1898), vol. 1, pp. 307 ff; Lotz, Geschichte und Kritik des deutschen Bankgesetzes vom 14. März 1875 (Leipzig, 1888), pp. 137 ff.

40. See Subercaseaux, Essai sur la nature du papier monnaie (Paris, 1909), pp. 5 ff.

Part I, Chapter 5

41. See Menger, Grundsätze der Volkswirtschaftslehre, 2d ed. (Vienna, 1923), pp. 20 ff.; Wieser, Über den Ursprung und die Hauptgesetze des wirtschaftlichen Wertes (Vienna, 1884), pp. 42 ff.

42. Roscher, System der Volkswirtschaft, ed. Pöhlmann, 24th ed. (Stuttgart, 1906), vol. 1, p. 123.

43. See Knies, Geld und Kredit, 2d ed. (Berlin, 1885), vol. 1, pp. 20 ff.

44. See Helfferich, Das Geld, 6th ed. (Leipzig, 1923), pp. 264 f.; Money (London, 1924),

45. E.g. Philippovich, Grundriss der politischen Ökonomie 1st-3d eds. (Tübingen, 1907), vol. 2; Wagner, Theoretische Sozialökonomik (Leipzig, 1909), vol. 2, Part 2 p. 1.

46. The older meaning, at least the only earlier meaning in literature, appears to have been that relating to the sale of goods. It is remarkable that even Grimm's Dictionary, vol. 12, published in 1891, contains no mention of the meaning relating to transportation.

47. See J. S. Mill, Principles of Political Economy (London, 1867), p. 16; Böhm-Bawerk, Kapital und Kapitalzins, pp. 10 ff.

48. Wieser, Über den Ursprung und die Hauptgesetze des wirtschaftlichen Wertes, p. 47. See also Böhm-Bawerk, op. cit., pp. 131 f.; Clark, The Distribution of Wealth (New York, 1908), p. 11.

49. Böhm-Bawerk, op. cit., Part II pp. 131 ff. See also, on the historical aspect, Jacoby, Der Streit um den Kapitalsbegriff (Jena, 1908), pp. 90 ff; Spiethoff, "Die Lehre vom Kapital," Schmoller-Festschrift Die Entwicklung der deutschen Volkswirtschaftslehre im 19. Jahrhundert (Leipzig, 1908), vol. 4, p. 26.

50. See Jacoby, op. cit., pp. 59 f.

51. See Böhm-Bawerk, op. cit., p. 125 n.

52. Ibid., p. 132 n.

53. Böhm-Bawerk, Rechte und Verhältnisse, pp. 36 ff.

54. Smith, The Wealth of Nations, Cannan's ed. (London, 1930).

55. This is true even bearing in mind the discussions of Menger and Clark. But in any case, an investigation, both of this matter and of the problems dealt with in part 3, chap. 19, which started from Menger's or Clark's capital concept would lead eventually to the same result as one based on Böhm-Bawerk's definition.

56. See Böhm-Bawerk, Kapital und Kapitalzins, pp. 54 f.

57. I, 3, 23.

58. See Böhm-Bawerk, Kapital und Kapitalzins, Part I, pp. 16 ff., Part II, pp. 23 ff.

59. Ibid., Part II pp. 54 f., 130 ff.

Part I, Chapter 6

60. On the history of such ideas, see Hildebrand, Die Nationalökonomie der Gegenwart und Zunkunft (Frankfurt, 1848), pp. 118 ff.; Roscher, System der Volkswirtschaft, ed. Pöhlmann, 24th ed. (Stuttgart, 1906), vol. 1, pp. 345 f.; Marx, Das Kapital, 7th ed. (Hamburg, 1914), vol. 1, pp. 95 f. n.

61. More, Utopia.

62. See Marx, Zur Kritik der politischen Ökonomie, ed. Kautsky (Stuttgart, 1897), pp. 70 if.; Knies, Geld und Kredit, 2d ed. (Berlin, 1885), vol. 1, pp. 239 ff.; Aucuy, Les systèmes socialistes d'Éxchange (Paris, 1908), pp. 114 ff.

63. See the three memoranda published in 1889 in Brussels by Solvay under the title La monnaie et le Compte, and also his Gesellschaftlicher Comptabilismus (Brussels, 1897). Solvay's theories also contain various other fundamental errors.

Part II, Chapter 7

1. See Böhm-Bawerk, Kapital und Kapitalzins, pp. 211 ff.

2. See Walsh, The Fundamental Problem in Monetary Science (New York, 1903), p. 11; and in like manner, Spiethoff, "Die Quantitätstheorie insbesondere in ihrer Verwertbarkeit als Haussetheorie," Festgaben für Adolf Wagner (Leipzig, 1905), p. 256.

3. See Rau, Grundsätze der Volkswirtschaftslehre, 6th ed. (Leipzig, 1855), p. 80.

4. See Böhm-Bawerk, op. cit., Part II, p. 275. And similarly in Wieser, Der natürliche Wert, p. 45; "Der Geldwert und seine Veränderungen," Schriften des Vereins für Sozialpolitik 132: 507.

5. See Böhm-Bawerk, op. cit., Part II, pp. 273 ff.; Schumpeter, Wesen und Hauptinhalt der theoretischen Nationalökonomie (Leipzig, 1908), p. 108.

6. Wieser, Der natürliche Wert, p. 46.

7. Ibid., p. 52.

8. Böhm-Bawerk, op cit., Part II, pp. 214 f.

9. See Helfferich, Das Geld, 6th ed. (Leipzig, 1923), pp. 301 f.

10. Thus Schumpeter, op. cit., p. 109.

11. See Böhm-Bawerk, op. cit., Part II, p. 217.

12. See Wieser, "Der Geldwert und seine geschichtlichen Veränderungen," Zeitschrift für Volkswirtschaft, Sozialpolitik und Verwaltung 13 (1904): 45.

13. Thus even as late as Menger, Grundsätze der Volkswirtschaftslehre (Vienna, 1871), p. 259 n; and also Knies, Geld und Kredit (Berlin, 1885), vol. 1, p. 323.

14. See Simmel, Philosophie des Geldes, 2d ed. (Leipzig, 1907), p. 130.

15. But, as a general rule, objects of art, jewelry and other things made of precious metal should not be regarded as constituting part of the stock of metal which performs the function of commodity money. They are goods of the first order, in relation to which the bullion or coined metal must be regarded as goods of superior orders.

16. See Wieser, "Der Geldwert und seine geschichtlichen Veränderungen," p. 46.

17. More than two hundred years ago, John Law, far ahead of his time and with an insight amounting to genius, had seized upon this truth: "Il est raisonnable de penser que l'argent s'échangeait sur le pied de ce qu'il était évalué pour les usages, comme métal, et q'on le donnait comme monnaie dans les échanges à raison de sa valeur. Le nouvel usage de la monnaie, auquel l'argent fut appliqué, dut ajouter à sa valeur, parce que, comme monnaie, obviait aux désavantages et aux inconvénients de l'échange; et conséquemment les demandes d'argent venant à s'augmenter, il reçut une valeur additionnelle, égale à l'accroissement de la demande occasionnée par son usage comme monnaie. Et cette valeur additionnelle n'est pas plus imaginaire que la valeur que l'argent avait dans les échanges comme métal, parce que telle ou telle valeur dérivait de son application à tels ou tels usages, et quelle était plus grande ou moindre, suivant les demandes d'argent comme métal, en proportion de sa quantité. Le valeur additionnelle que l'argent reçut de son usage comme monnaie provient de ses qualités, qui le rendaient propre a cet usage; et cette valeur fut en raison de la demande additionnelle occasionnée par son usage comme monnaie. Si l'une et l'autre de ces valeurs sont imaginaires, alors toutes les valeurs le sont; car aucune chose n'a de valeur que par l'usage auquel on l'applique, et à raison des demandes qu'on en fait, proportionellement à sa quantité" (Considerations sur le numéraire et le commerce, ed. Daire, Économistes financiers du XVIIIe siécle, 2nd. ed. [Paris, 1851]), pp. 447 f. See further Walras, Théorie de la monnaie (Lausanne, 1886), p. 40; Knies, op. cit., vol. 1, p. 324. Objective theories of value are unable to comprehend this fundamental principle of the theory of the value of money. This is best shown by the lack of comprehension with which Marx confronts the arguments of Law cited above (see Marx, Das Kapital, 7th ed. (Hamburg, 1914) vol. 1, p. 56, n. 46; trans. E. and C. Paul into English).

18. See Heyn, Irrtümer auf dem Gebiete des Geldwesens (Berlin, 1900), p. 3; Simmel, op. cit., pp. 116 ff.

19. Jevons, Money and the Mechanism of Exchange, 13th ed. (London, 1902), pp. 49 f.

Part II, Chapter 8

20. See pp. 121-22 above. Also Böhm-Bawerk, Kapital und Kapitalzins, Part II, p. 274; Wieser, Der natürliche Wert, p. 46. (Eng. trans. The Theory of Natural Value.)

21. See Wieser, "Der Geldwert und seine Veränderungen," Schriften des Vereins für Sozialpolitik. 132:513 ff.

22. See Knies, Geld und Kredit (Berlin, 1885), vol. 1, p. 324.

23. Thus Locke, Some Considerations of the Consequences of the Lowering of Interest and Raising the Value of Money, 2d ed. (London, 1696), p. 31.

24. See Subercaseaux, Essai sur la nature du papier monnaie (Paris, 1909), pp. 17 f.

25. See Simmel, Philosophie des Geldes, 2d ed. (Leipzig, 1907), pp. 115 f.; but, above all, Wieser, "Der Geldwert und seine Veränderungen," p. 513.

26. See Schmoller, Grundriss der allgemeinen Volkswirtschaftslehre (Leipzig, 1902), vol. 2, p. 110.

27. See Zwiedineck, "Kritisches und Positives zur Preislehre," Zeitschrift für die gesamte Staatswissenschaft, Vol. 65, pp. 200 ff.

28. See Wieser, "Der Geldwert und seine Veränderungen," p. 513.

29. See Senior, Three Lectures on the Value of Money (London, 1840; 1931), pp. 1 ff.; Three Lectures on the Cost of Obtaining Money (London, 1830; 1931), pp. 1 ff.

30. See Davanzati, Lezioni delle monete, 1588 (in Scrittori classici italiani di economia politica, Parte Antica (Milan, 1804), vol. 2, p. 32. Locke and, above all, Montesquieu (De l'Ësprit des lois, edition Touquet [Paris, 1821], vol. 2, pp. 458 f.) share this view. See Willis, "The History and Present Application of the Quantity Theory," Journal of Political Economy 4 (1896): 419 ff.

31. See Zuckerkandl, Zur Theorie des Preises (Leipzig, 1889), p. 124.

32. See Wieser, "Der Geldwert und seine Veränderungen," p. 514.

33. See Carver, "The Value of the Money Unit," Quarterly Journal of Economics 11 (1897): 429 f.

34. See Kinley, Money (New York, 1909), pp. 123 ff.

35. See Walras, Théorie de la Monnaie (Lausanne, 1886), pp. 25 ff.

36. See Kemmerer, Money and Credit Instruments in Their Relation to General Prices (New York, 1907), pp. 11 ff.

37. See Wieser, "Der Geldwert und seine Veränderungen," pp. 514 ff.

38. [See p. 146 n. H.E.B.]

39. See Wicksell, Geldzins und Güterpreise (Jena, 1898), pp. iv ff, 16 ff.

40. Ibid., p. 35.

41. See Helfferich, Das Geld, 6th ed. (Leipzig, 1923), p. 577.

42. Ibid., p. 578.

43. Dr. B. M. Anderson, pp. 100-110 of his excellent work The Value of Money (New York, 1917), has objected to the theory set forth above that instead of a logical analysis it provides merely a temporal regressus. Nevertheless, all the acute objections that he manages to bring forward are directed only against the argument that finds a historical component in the exchange ratios subsisting between commodities, an argument with which I also [see pp. 133 ff. above] am in definite disagreement. But Dr. Anderson recognizes the logical foundation of my theory when he declares, "I shall maintain that value from some source other than the monetary employment is an essential precondition of the monetary employment" (p. 126).

44. See Menger, Grundsätze der Volkswirtschaftslehre (Vienna, 1923), pp. 304 ff. [In the German edition of this book, the above paragraph was followed by an explanation that German writers, following Menger, usually refer to "the question of the nature and extent of the influence upon the exchange ratios between money and commodities exerted by variations in those determinants of prices that lie on the monetary side" as the problem of the innere objektive Tauschwert of money, and to "those concerned with variations in the objective exchange value of money throughout time and space in general" as the problem of its äussere objektive Tauschwert. Since this distinction has not been usual in English terminology, it has been omitted from the present version; and, in what follows, wherever "the objective exchange value of money" is referred to, it is the innere exchange value that is meant unless the contrary is explicitly stated. H.E.B.]

45. See Wieser, Über den Ursprung und die Hauptgesetze des wirtschaftlichen Wertes, op. cit., pp. iii.

46. See Laughlin, The Principles of Money (London, 1903), pp. 513 f.

47. Ibid., pp. 530 f.

48. Ibid., pp. 531 ff.

49. See Zuckerkandl, op. cit., pp. 123 ff.

50. See Mill, Principles of Political Economy (London, 1867), p. 299.

51. Cf. Marshall, before the Indian Currency Committee, "Report" (London, 1898—99; Q. 11759), in Official Papers (London, 1926), p. 267.

52. See Menger, op. cit., pp. 325 ff.; also Helfferich, op. cit., pp. 500 ff.

53. See Appendix B.

54. Examination of the relationship of this supposition to the doctrine of the "purely metallic currency" as expounded by the Currency School would necessitate a discussion of the criticism that has been leveled at it by the Banking School; but certain remarks in the third part of the present work on fiduciary media and the clearing system will fill the gap left above.

55. It is remarkable that even investigators who otherwise take their stand upon the subjective theory of value have been able to fall into this error. So, for example, Fisher and Brown, The Purchasing Power of Money (New York, 1911), pp. 8 ff.

56. See Wieser, "Der Geldwert und seine Veränderungen," pp. 515 ff.

57. See Hume, Essays, ed. Frowde (London), pp. 294 ff.; Mill, op. cit., pp. 298 ff.; Cairnes, Essays in Political Economy, Theoretical and Applied (London, 1873), pp. 57 ff.; Spiethoff, "Die Quantitätstheorie insbesondere in ihrer Verwertbarkeit als Haussetheorie," Festgaben für Adolf Wagner (Leipzig, 1905), pp. 250 ff.

58. Hume, op. cit., p. 307

59. Mill, op. cit., p. 299.

60. See Conant, "What Determines the Value of Money?" Quarterly Journal of Economics 18 (1904): 559 ff.

61. See Fisher and Brown, op. cit., pp. 28 ff., 157 ff.

62. See Fullarton, On the Regulation of Currencies, 2d ed. (London, 1845), pp. 69 ff., 138 f.; Wagner, Die Geld- und Kredittheorie der Peelschen Bankakte (Vienna, 1862), pp. 97 ff.

63. Elsewhere, explicitly as well. See Fullarton, op. cit., pp. 57 f.; Wagner, op. cit., p. 70.

64. See also Knies, Geld und Kredit (Berlin, 1876), vol. 2, 1st half, pp. 284 ff.

65. See Fullarton, op. cit., p. 71.

66. See Diehl, Sozialwissenschaftliche Erläuterungen zu David Ricardos Grundsätzen der Volkswirtschaft und Besteuerung, 3d ed. (Leipzig, 1922), Part 2, p. 230.

67. See Spiethoff, op. cit., pp. 263 ff.; Kemmerer, op. cit., pp. 67 ff.; Mill, op. cit., pp, 316 ff.

68. See pp. 336 ff. below.

69. See White, Money and Banking Illustrated by American History (Boston, 1895), pp. 166 ff.

70. See Wagner, Theoretische Sozialökonomik (Leipzig, 1909), vol. 2, p, 245.

71. See Wieser, "Der Geldwert und seine geschichtlichen Veränderungen," pp. 57 ff.; "Der Geldwert und seine Veränderungen," pp. 527 ff.; "Theorie der gesellschaftlichen Wirtschaft," in Grundriss der Sozialökonomik (Tübingen, 1914), Part I pp. 327 ff.

72. See also my article "Die allgemeine Teuerung im Lichte der theoretischen Nationalalökonomie, Archiv für Sozialwissenschaft 37: 563 ff.

73. Menger, Beiträge zur Währungsfrage in Österreich-Ungarn (Jena, 1892), pp. 53 ff.

74. For example, the letter postage rates of the member countries of the International Postal Union.

75. Jahrbücher für Nationalökonomie und Statistik, 3d Series, vol. 47, pp. 86-93.

76. See pp. 148 ff. above.

Part II, Chapter 9

77. See pp. 97 above.

78. See Senior, Three Lectures on the Cost of Obtaining Money, pp. 1 ff.

79. See Wieser, "Der Geldwert und seine Veränderungen," Schriften des Vereins für Sozialpolitik 132: 531 f.

Part II, Chapter 10

80. The theory put forward above, which comes from Ricardo, is advocated with particular forcefulness nowadays by Cassel, who uses the name purchasing-power parity for the static exchange ratio. See Cassel, Money and Foreign Exchange After 1914 (London, 1922), p. 181 f.

81. See Senior, Three Lectures on the Transmission of the Precious Metals from Country to Country and the Mercantile Theory of Wealth (London, 1828), pp. 5 ff.

82. See Ricardo, "Principles of Political Economy and Taxation," in Works, ed. McCulloch, 2d ed. (London, 1852), pp. 213 ff.; Hertzka, Das Wesen des Geldes (Leipzig, 1887), pp. 42 ff.; Kinley, Money (New York, 1909), pp. 78 ff.; Wieser, "Der Geldwert und seine Veränderungen," Schriften des Vereins für Sozialpolitik 132: 530 ff.

83. Transitory displacements are possible, if foreign money is acquired in the speculative anticipation of its appreciating.

Part II, Chapter 11

84. [Following Menger, we should call the first of these two problems the problem of the measurability of the äussere objective exchange value of money, the second that of the measurability of its innere objective exchange value. See also p. 146 n. H.E.B.]

85. See Menger, Grundsätze der Volkswirtschaftslehre, 2d ed. (Vienna, 1923), pp. 298 ff.

86. On Falkner's method, see Laughlin, The Principles of Money (London, 1903), pp. 213—21; Kinley, Money (New York, 1909), pp. 253 ff.

87. See Wieser, "Uber die Messung der Veränderungen des Geldwerts," Schriften des Vereins für Sozialpolitik 132 (Leipzig, 1910): 544 ff. Joseph Lowe seems to have made a similar proposal as early as 1822; on this, see Walsh, The Measurement of General Exchange Value (New York, 1901), p. 84.

88. See Weiss, Die moderne Tendenz in der Lehre vom Geldwert, Zeitschrift für Volkswirtschaft, Sozialpolitik und Verwaltung, vol. 19, p. 546.

89. See also pp. 243 ff. below.

Part II, Chapter 12

90. See Dernburg, Pandekten, 6th ed. (Berlin, 1900), vol. 1, p. 84. On the fact that one of the chief characteristics of a fiction is the explicit consciousness of its fictitiousness, see also Vaihinger, Die Philosophie des Als ob, 6th ed. (Leipzig, 1920), p. 173; English trans., The Philosophy of "As If" (London: Kegan Paul, 1924).

91. L. 80, Dig. de solutionibus et liberationibus 46, 3. Pomponius libro quarto ad Quintum Mucium. See further Seidler, "Die Schwankungen des Geldwertes und die juristische Lehre von dem Inhalt der Geldschulden," Jahrbücher für Nationalökonomie und Statistik (1894), 3d series, vol. 7, pp. 685 ff.; Endemann, Studien in der romanische-kanonistischen Wirtschafts- und Rechtslehre bis gegen Ende des 17 Jahrhunderts (Berlin, 1874), vol. 2, p. 173.

92. In a review of the first edition (Die Neue Zeit, 30th year, vol. 2, p. 1024-1027), Hilferding criticized the above arguments as "merely funny." Perhaps it is demanding too much to expect this detached sense of humor to be shared by those classes of the German nation who have suffered in consequence of the depreciation of the mark. Yet only a year or two ago even these do not appear to have understood the problem any better. Fisher (Hearings Before the Committee on Banking and Currency of the House of Representatives, 67th Cong., 4th sess., on H.R. 1788 [Washington, D.C., 1923], pp. 5 ff., 25 ff.) gives typical illustrations. It was certainly an evil fate for Germany that its monetary and economic policy in recent years should have been in the hands of men like Hilferding and Havenstein, who were not qualified even for dealing with the depreciation of the mark in relation to gold.

93. See Knies, Geld und Kredit, (Berlin, 1876), vol. 2, Part I, pp. 105 ff.; Fisher, The Rate of Interest (New York, 1907), pp. 77 ff., 257 ff., 327 ff., 356 ff.

94. See Clark, Essentials of Economic Theory (New York, 1907), pp. 541 ff.

95. See Walsh, The Measurement of General Exchange Value (New York, 1901), pp. 80 ff.; Zi&zbreve;ek, Die statistischen Mittelwerte (Leipzig, 1908), pp. 183 ff.

96. See Mügel, Geldentwertung und Gesetzgebung (Berlin, 1923), p. 24.

97. [It should be remembered that all this was written in 1924. H.E.B.]

98. At Vienna in March 1892 at the sessions of the Currency Inquiry Commission, which was appointed in preparation for the regulation of the Austrian currency, Carl Menger remarked: "I should like to add that not only legislators, but all of us in our everyday life, are in the habit of disregarding the fluctuations in the purchasing power of money. Even such distinguished bankers as yourselves, gentlemen, draw up your balance sheet at the end of the year without inquiring whether by any chance the sum of money representing the share capital has gained or lost in purchasing power." These remarks of Menger's were not understood by the director of the Bodenkreditanstalt, Theodor von Taussig, the most outstanding of all Austrian bankers. He replied: "A balance sheet is a balancing of the property or assets of a company or individual against its liabilities, both expressed in terms of the accepted measure of value or monetary standard, that is, for Austria in gulden. Now I cannot see how, when we are thus expressing property and indebtedness in terms of the standard (which we have assumed to be homogeneous), we are to take account of variations in the standard of measurement instead of taking account of variations in the object to be measured, as is customary." Taussig completely failed to see that the point at issue concerned the estimation of the value of goods and the amount of depreciation to be written off, and not the balancing of monetary claims and monetary obligations, or that a profit and loss account, if it is not to be hopelessly inexact, must take account of variations in the value of money. Menger had no occasion to raise this point in his reply, since he was rather concerned to show that his remarks were not to be interpreted, as Taussig was inclined to interpret them, as an accusation of dishonest practice on the part of the bank directors. Menger added: "What I said was merely that all of us, not only the directors of the banks (I said even such men as are at the head of the banks), make the mistake of not taking account in everyday life of changes in the value of money" (Stenographische Protokolle über die vom 8. bis 17. März 1892 abgehaltenen Sitzungen der nach Wien einberufenen Währungs-Enquete-Kommission [Vienna, 2892], pp. 221, 257, 270).

99. See my book, Nation, Staat und Wirtschaft (Vienna, 1919), pp. 129 ff. A whole series of writings dealing with these questions has since appeared in Germany and Austria.

100. Cf. further pp. 440 ff. below.

101. See Ricardo, Letters to Malthus, ed. Bonar (Oxford, 1887), p. 10.

102. See Hume, Essays, ed. Frowde (London), p. 294 ff.

103. Auspitz and Lieben, Untersuchungen über die Theorie des Preises (Leipzig, 1889), p. 65.

Part II, Chapter 13

104. [The author uses the term Geldwertpolitik in the technical sense defined in the above section. I have reserved the term monetary policy for this special meaning. Currency policy is the term I have used to translate Währungspolitik. H.E.B.]

105. Similar interests, say those of the printers, lithographers, and the like, may play a part in the production of paper money also. Perhaps such motives had something to do with Benjamin Franklin's recommendation of an increase of paper money in his first political writing, which was published (anonymously) in Philadelphia in 1729: "A Modest Inquiry into the Nature and Necessity of a Paper Currency" (in The Works of Benjamin Franklin, ed. Sparks [Chicago, 1882], vol. 2, pp. 253-77). Shortly before—as he relates in his autobiography (ibid., vol. 1, p. 73)—he had printed the notes for New Jersey, and when his pamphlet led to the decision to issue more notes in Pennsylvania, despite the opposition of the "rich men," he got the order to print the notes. He remarks on this in his autobiography: "A very profitable job, and a great help to me. This was another advantage gained by me being able to write" (ibid., p. 92).

* [Printed Liberty Fund edition mistakenly reads "Native"—Econlib Ed.]

106. On the naive inflationary proposals that have been made in recent years by the motor-car manufacturer Henry Ford, the famous inventor Edison, and the American senator Ladd, see Yves Guyot, Les problèmes de la déflation (Paris, 1923), pp. 281 f.

107. This had been urged as early as 1740 by William Douglass in his anonymous writing A Discourse Concerning the Currencies in the British Plantations in America (Boston, 1740). See also Fisher, The Rate of Interest, p. 356.

108. See Hertzka, Währung und Handel (Vienna, 1876), p. 42.

109. See Bentham, Defense of Usury, 2d ed. (London, 1790), pp. 102 ff.

110. See Wright and Harlow, The Gemini Letters (London, 1844), pp. 51 ff.

111. See Hofmann, "Die Devalvierung des österreichischen Papiergeldes im Jahre 1811," Schriften des Vereins für Sozialpolitik 165, Part I.

112. [It should be remembered that the German edition from which the present version is translated was published in 1926. See, however, the discussion of British policy, pp. 23-26 above. H.E.B.]

113. [See p. 146 n above.]

114. Cp. pp. 251 and 262-63 above.

115. Esp. Pigou, The Economics of Welfare (London, 1921), pp. 665 ff.

Part II, Chapter 14

116. On this, see my book, Die Gemeinwirtschaft, 2d ed., (Jena, 1922), pp. 211 ff.

117. See my book, Nation, Staat und Wirtschaft (Vienna, 1919), pp. 108 ff.

118. Cassel rightly says: "A perfectly clear understanding of the monetary problem, brought about by the world war, can never be attained until officialdom's interpretation of affairs has been disproved point by point, and full light thrown on all the delusions with which the authorities attempted as long as possible to obsess the public mind" (Cassel, Money and Foreign Exchange After 1914 [London, 1922], pp. 7 ff.). See Gregory's criticism of the most important etatistic arguments in his Foreign Exchange Before, During and After the War (London, 1921), esp. pp. 65 ff.

119. A leader of the Hungarian Soviet republic said to the author in the spring of 1919: "The paper money issued by the Soviet republic ought really to have the highest exchange rate next to the Russian money, for, through the socialization of the private property of all Hungarians, the Hungarian state has become next to Russia the richest state in the world, and consequently the most deserving of credit."

Part III, Chapter 15

1. See Bagehot, Lombard Street (London, 1906), p. 21.

2. Knies, Geld und Kredit, (Berlin, 1876), vol. 2, Part II, p. 242. See further, Weber, Depositen- und Spekulationsbanken (Leipzig, 1902), pp. 106 f.; Sayous, Les banques de depôt, les banques de crédit et les sociétés financières, 2d ed. (Paris, 1907), pp. 219 ff.; Jaffé, Das englische Bankwesen, 2d ed. (Leipzig, 1910), p. 203.

3. See Macleod, The Elements of Banking (London, 1904), p. 153.

4. See Fullarton, On the Regulation of Currencies, 2d ed. (London, 1845), p. 39; Mill, Principles of Political Economy (London, 1867), p. 314; Jaffé, op. cit., p. 175.

5. See Jaffé, op. cit., p. 153.

6. This is the "surplus profit" (Übergewinn) of the business of banking, referred to by Hermann (op. cit., pp. 500 f.).

7. As, for example, even Wicksell does (Geldzins und Güterpreise [Jena, 1898], p. 57).

8. See Torrens, The Principles and Practical Operation of Sir Robert Peel's Act of 1844 Explained and Defended, 2d ed. (London, 1857), pp. 16 ff.

9. Ibid., p. 18.

10. Since the appearance of the first edition of the present work numerous books have been published that still do not recognize the problem of circulation credit. Among the works that have grasped the nature of this problem the following should be mentioned: Schumpeter, Theorie der wirtschaftlichen Entwicklung (Leipzig, 1912), pp. 219 ff.; Schlesinger, Theorie der Geld- und Kreditwirtschaft (Munich and Leipzig, 1914), pp. 133 ff.; Hahn, Volkswirtschaftliche Theorie des Bankkredits (Tübingen, 1920), pp. 52 ff.

11. Thus Lexis, Allegemeine Volkswirtschaftslehre (Berlin, 1910) (Hinnenberg, Die Kultur der Gegenwart, section II, vol. 10, Part 1), p. 122; Lexis, Geld und Preise (Riesser-Festgabe, Berlin, 1913), pp. 83 f. Similarly, with regard to the clearinghouse business, Schumacher, Weltwirtschaftliche Studien (Leipzig, 1911), pp. 53 f. and the writings there referred to.

Part III, Chapter 16

12. See Lotz, Geschichte und Kritik des deutschen Bankgesetzes vom 14. März 1875 (Leipzig, 1888), pp. 72 f.

13. See for example on the Swiss currency reserve fund established by article 8 of the Currency Act of January 31, 1860, Altherr, Eine Betrachtung über neue Wege der schweizerischen Münzpolitik (Bern, 1908), pp. 61 ff.

14. See Knies, Geld und Kredit, (Berlin, 1876), vol. 2, Part I, pp. 268 ff.

15. See l. 21, sec. 1 D. de liberatione legata 34, 3. Terentius Clemens libro XII ad legem Juliam et Papiam.

16. See l. 1 D. der compensationibus 16, 2. Modestinus libro sexto pandectarum.

17. See Thornton, An Enquiry into the Nature and Effects of the Paper Credit of Great Britain (London, 1802), pp. 39 ff.

18. See Baird, The One Pound Note, Its History, Place and Power in Scotland, and Its Adaptability for England, 2d ed. (Edinburgh, 1901), pp. 9 ff.; Graham, The One Pound Note in the History of Banking in Great Britain, 2d ed. (Edinburgh, 1911), pp. 195 ff.; Nicholson, A Treatise on Money and Essays on Present Monetary Problems (Edinburgh, 1888), pp. 177 ff.; Jevons, Investigations in Currency and Finance (London, 1909), pp. 275 ff.

19. See Lindsay, A Gold Standard Without a Gold Coinage in England and India (Edinburgh, 1879), pp. 12 ff. I have not been able to obtain access to a second pamphlet by the same author which appeared anonymously in 1892 under the title Ricardo's Exchange Remedy.

20. See Probyn, Indian Coinage and Currency (London, 1897), pp. 1 ff.

21. See Report of the Indian Currency Committee 1898 (in Stability of International Exchange, Report on the Introduction of the Gold-Exchange Standard into China and Other Silver-using Countries submitted to the Secretary of State, October 1, 1903, by the Commission on International Exchange [Washington, D.C., 1903], Appendix G), pp. (315).; Heyn, Die indische Währungsreform, (Berlin, 1903), pp. 54 ff.; Bothe, Die indische Währungsreform seit 1893 (Stuttgart, 1906), pp. 199 ff.

22. On the fate of the Indian currency in the period of inflation during the Great War, see Spalding, Eastern Exchange, Currency and Finance, 3d ed. (London, 1920), pp. 31 ff.

23. See Conant, "The Gold Exchange Standard in the Light of Experience," The Economic Journal 19 (1909): 200.

24. In the pamphlet published in 1816, "Proposals for an Economical and Secure Currency with Observations on the Profits of the Bank of England," in Works, ed. McCulloch, 2d ed. (London, 1852), pp. 404 ff.

25. See Patterson, Der Krieg der Banken, trans. from the English by Holtzendorff (Berlin, 1867), pp. 17 ff.; Wolf, Verstaatlichung der Silberproduktion und andere Vorschläge zur Währungsfrage (Zurich, 1892), pp. 54 ff.; Wolf, "Eine international Banknote," in Zietscrift für Sozialwissenschaft (1908), vol 11, pp. 44 ff.

26. These words, written in 1911, need no addition today.

27. See De Greef, "La monnaie, le crédit et le change dans le commerce international," Revue economique internationale 4 (1911): 58 ff.

Part III, Chapter 17

28. See Smith, The Wealth of Nations, Cannan's ed. (London, 1930), vol. 2, pp. 28, 78.

29. See Ricardo, "The High Price of Bullion a Proof of the Depredation of Bank Notes," in Works, ed. McCulloch, 2d ed. (London, 1852), pp. 263 ff.; "Proposals for an Economical and Secure Currency" in ibid., pp. 397 ff.; see pp. 324-25 above and 467-68 below.

30. On the question of the dependence of economic fluctuations on credit policy, see pp. 445 f. below.

31. See Jevons, Investigations in Currency and Finance, pp. 8, 151 ff.; Palgrave, Bank Rate and the Money Market in England, France, Germany, Holland and Belgium 1844-1900 (London, 1903), pp. 106 ff.; 138; J. Laughlin, The Principles of Money (London, 1903), pp. 409 ff.

32. See Spiethoff, "Die Quantitätstheorie insbesondere in ihrer Verwertbarkeit als Haussetheorie," Festgaben für Adolf Wagner (Leipzig, 1905), pp. 263 f.

33. See Helfferich, Studien über Geld- und Bankwesen (Berlin, 1900), pp. 151 f.; Schumacher, Weltwirtschaftliche Studien (Leipzig, 1911), pp. 5 ff.

34. See White, An Elastic Currency (New York, 1893), p. 4.

35. See pp. 173 ff. above.

36. See Tooke, An Inquiry into the Currency Principle (London, 1844), pp. 60 ff.; 122 f.; Fullarton, On the Regulation of Currencies, 2d ed. (London, 1845), pp, 82 ff.; Wilson, Capital, Currency and Banking (London, 1847), pp. 67 ff.; Mill, Principles of Political Economy (London, 1867), pp. 395 ff.; Wagner, Geld- und Kredittheorie der Peelschen Bankakte (Vienna, 1862), pp. 135 ff. On Mill's lack of consistency in this question, see Wicksell, Geldzins und Güterpreise (Jena, 1898), pp. 78 f.

37. See Laughlin, The Principles of Money (London, 1903), p. 412.

38. See Wicksell, op. cit., p. v.

39. See Fullarton, op. cit., p. 64.

40. See Schumacher, op. cit., pp. 122 f.

41. See Prion, Das deutsche Wechseldiskontgeschäft (Leipzig, 1907), pp. 120 ff., 291 ff.

42. Part of the rediscounting done at the Reichsbank by the private banks shortly before the critical days of settlement is done not so much because the banks are short of capital but because they desire to pass on nearly matured bills to be called in by the Reichsbank, which is able to perform this task more cheaply than they are, thanks to its extensive network of branches. See ibid., pp. 138 ff.

Part III, Chapter 18

43. See Ricardo, "Proposals," in Works, ed. McCulloch, 2d ed. (London, 1852), p. 406; Walras, Études d'économie politique appliquée (Lausanne, 1898), pp. 365 f.

44. See for example, Tellkampf, Die Prinzipien des Geld- und Bankwesens (Berlin, 1867), pp. 181 ff.; Erfordernis voller Metalldeckung der Banknoten (Berlin, 1873), pp. 23 ff.; Geyer, Theorie und Praxis des Zettelbankwesens, 2d ed. (Munich, 1874), p. 227.

45. See Hepburn, History of Coinage and Currency in the United States (New York, 1903), p. 418.

46. See Dunbar, Chapters on the Theory and History of Banking, 2d ed. (New York, 1907), P. 99.

47. See Kiga, Das Bankwesen Japans, Leipziger Inaug. Diss., p. 9.

48. See Oppenheim, Die Natur des Geldes (Mainz, 1855), pp. 241 f.

49. This example assumes the circumstances that existed before 1914.

50. See pp. 296 ff. But the fact is often ignored that this "principle of the banking adequate cover" is valid not only for banks but similarly for all other undertakings. See, for example, Schulze-Gaevernitz, "Die deutsche Kreditbank," Grundriss der Sozialökonomik, Part V, section 2, pp. 240 ff.

51. See Wagner, System der Zettelbankpolitik (Freiburg, 1873), pp. 240 ff.—The "golden rule" found its classical expression with regard to the business of credit banks in the famous "Note expédiée du Havre le 29 Mai 1810, à la Banque de France, par ordre de S. M. l'Empereur, et par l'entremise de M. le comte Mollien, ministre du Trésor" (I quote from the reprint in Wolowski, La Question des Banques [Paris, 1864], pp. 83-87): "Il faut qu'une banque se maintienne en état de se liquider à tout moment, d'abord, vis-à-vis des porteurs de ses billets, par la réalisation de son portefeuille, et, apres les porteurs de ses billets, viv-à-vis de ses actionnaires, par la distribution à faire entre eux de la portion du capital fourni par chacun d'eux. Pour ne jamais finir, une banque doit etre toujours prête à finir" (p. 87). All the same, Mollien had no doubt on the point that a bank that does not issue its notes otherwise "qu'en échange de bonnes et valable lettres de change, à deux et trois mois de terme au plus" can only call in its notes from circulation "dans un espace de trois mois" (ibid., p. 84).

52. In the United States, before the reorganization of the banking system under the Federal Reserve Act, the lack of a central bank in times of crises was made up for by ad hoc organizations of the banks that were members of the clearinghouses.

53. See above, pp. 346 f.

54. See Nicholson, A Treatise on Money and Essays on Present Monetary Problems (Edinburgh, 1888), pp. 67 f.

55. See Kalkmann, "Holland's Geldwesen im 29. Jahrhundert," in Schmoller's Jahrbuch, vol. 25, pp. 2249 ff.; Witten, "Die Devisenpolitik der Nationalbank von Belgien," in ibid., vol. 42, pp. 625 ff.

Part III, Chapter 19

56. The fact that I have followed the terminology and method of attack of Böhm-Bawerk's theory of interest throughout this chapter does not imply that I am an adherent of that theory or am able to regard it as a satisfactory solution of the problem. But the present work does not afford scope for the exposition of my own views on the problem of interest; that must be reserved for a special study, which I hope will appear in the not too distant future. In such circumstances I have had no alternative but to develop my argument on the basis of Böhm-Bawerk's theory. Böhm-Bawerk's great achievement is the foundation of the work of all those who until now have dealt with the problem of interest since his time, and may well be the foundation of the work of those who will do so in the future. He was the first to clear the way that leads to understanding of the problem; he was the first to make it possible systematically to relate the problem of interest to that of the value of money.

57. See Hume, Essays, ed. Frowde (London), pp. 303 ff.; Smith, The Wealth of Nations, Cannan's ed. (London, 1930), vol. 2, pp. 243 ff.; see also J. S. Mill, Principles of Political Economy (London, 1867), pp. 296 f.

58. See, for example, Georg Schmidt, Kredit und Zins (Leipzig, 1910), pp. 38 ff.

59. The transaction is conducted by the bank selling part of its consols "for money" and buying them back immediately "on account." The on-account price is higher, because it contains a large part of the interest that is almost due; the margin between the two prices represents the compensation that the bank pays for the loan. The cost that this entails is made up for by the fact that the bank now gets a larger proportion of the lending business. See Jaffé, Das englische Bankwesen, 2d ed. (Leipzig, 1910), p. 250.

60. See, for example, Arendt, Geld—Bank—Börse (Berlin, 1907), p. 19.

61. See Gilbart, The History, Principles and Practice of Banking, rev. ed. (London, 1904), vol. 1, p. 98.

62. See Wicksell, Geldzins und Güterpreise (Jena, 1898), p. 74. Indeed, even the writers of that period do frequently deal with the problem of a change in the rate of interest; see, for example, Tooke, An Inquiry into the Currency Principle (London, 1844), p. 224.

63. See Tooke, An Inquiry into the Currency Principle (London, 1844), pp. 121 ff.; Fullarton, On the Regulation of Currencies, 2d ed. (London, 1845), pp. 82 ff.; Wilson, Capital, Currency and Banking (London, 1847), pp. 67 ff. Wagner follows the train of thought of these writers in his Die Geld- und Kredittheorie der Peelschen Bankakte, pp. 135 ff.

64. See Torrens, The Principles and Practical Operation of Sir Robert Peel's Act of 1844 Explained and Defended, 2d ed. (London, 1857), pp. 57 ff.; Overstone, Tracts and Other Publications on Metallic and Paper Currency (London, 1858), passim.

65. See Wicksell, op. cit., pp. 1 ff.

66. See Fisher, The Rate of Interest (New York, 1907), pp. 94 f.

67. See Böhm-Bawerk, Kapital und Kapitalzins, p. 622.

68. See Fisher and Brown, The Purchasing Power of Money (New York, 1911), pp. 58 ff.

69. See, for instance, the most recent literature on the German banking reform; for example, the above-cited work by Schmidt (see p. 379 n. 3). An historical study would have to examine the extent to which Law, Cieszkowski, Proudhon, Macleod, and others, are to be regarded as inventors and adherents of this doctrine.

70. See Wicksell, op. cit., pp. v ff.

71. See ibid., pp. v ff., III; also "The Influence of the Rate of Interest on Prices," Economic Journal 18 (1907): 213 ff.

72. See Wicksell, "The Influence of the Rate of Interest," p. 215.

73. See Wicksell, Geldzins und Güterpreise, pp. 104 f.

74. See Walras, Études d'économie politique appliquée (Lausanne, 1898), pp. 345 f.

75. See Böhm-Bawerk, op. cit., pp. 611 ff.

76. Ibid., pp. 151 ff.

77. The fact that the two movements occur in opposite directions, so that they cancel one another, had been emphasized by Mill (Principles, pp. 391 ff.) in order to show that the increase in the rate of interest caused by inflation would be counteracted by the circumstance that the additional quantity of notes, if issued by the banks (and the additional quantity of gold so far as it was used productively), have a reducing effect on the bank rate of interest.

78. See p. 259-60 above.

Part III, Chapter 20

79. [Some of the problems that have arisen since are referred to on pp. 23-31. H.E.B.]

80. [See editor's Introduction, pp. 21-22, above. H.E.B.]

81. See Torrens, The Principles and Practical Operation of Sir Robert Peel's Act of 1844 Explained and Defended, 2d ed. (London, 1857), pp. 8 ff.

82. See Tooke, An Inquiry into the Currency Principle (London, 1844), pp. 23 ff.

83. See Wagner, "Banknote," in Rentzsch, Handwörterbuch der Volkswirtschaftslehre (Leipzig, 1866), p. 91.

84. See Wagner, "Kredit," ibid., p. 201.

85. See Schumacher's criticism of this contradiction, Weltwirtschaftliche Studien (Leipzig, 1911), pp. 62 ff.

86. See Cannon, Clearinghouses: Their History, Methods and Administration (New York, 1900), pp. 79 ff.

87. The Federal Reserve Act has since provided the United States with a basis for issuing notes in order to allay a panic.

88. See Sartorious von Waltershausen, Das volkswirtschaftliche System der Kapitalanlage im Auslande (Berlin, 1907), pp. 126 ff.

89. [See pp. 21-22 above. H.E.B.]

90. See Rosendorff, "Die Goldprämienpolitik der Banque de France und ihre deutschen Lobredner," Jahrbücher für Nationalökonomie und Statistik 21 (1901): 632 ff.; Dunbar, Chapters on the Theory and History of Banking, 2d ed. (New York, 1907), pp. 147 ff.

91. See Kaufmann, Das französische Bankwesen (Tübingen, 1911), pp. 35 ff.

92. On this, see Rosendorff, op. cit., pp. 640 ff., and passages cited in the essay "Die neue Richtung in der Goldpolitik der Bank von Frankreich," Bank-Archiv. 7 (1907): (72) ff., taken from the statements of account of the Bank of France, in which the raising of the discount rate is spoken of as the "seul moyen connu de défendre l'encaisse."

93. See Landesberger, Währungssystem und Relation (Vienna, 1891), p. 104.

94. Ibid., p. 105, and Über die Goldprämienpolitik der Zettelbanken (Vienna, 1892), p. 28.

95. Even at the time when the thaler was still unlimited legal tender and so occupied position analogous to that of the French five-franc piece, the German Reichsbank never followed a gold-premium policy on the French pattern, although it was often advised to do so. This is probably to be ascribed not so much to the circumstance that the number of thalers was relatively small as to the influence of Bamberger's ideas throughout the Reich. An open break with the principles of the banking and currency reform of the period after 1870-71 was, in view of the prevailing opinion, out of the question.

96. See Koch, Der Londoner Goldverkehr (Stuttgart, 1905), p. 708.

97. Ibid., pp. 81 f.

98. See Clare, A Money Market Primer and Key to the Exchanges, 2d ed. (London, 1893), p. 22.

99. Rosendorff ("Die Goldprämienpolitik der Banque de France," p. 636) would appear to be mistaken in thinking it possible to detect a difference of principle between the procedure of the Bank of England and the Reichsbank in paying out gold and the gold-premium policy of the Bank of France. He bases his view on the argument that, whereas the latter refuses altogether to pay out French gold coins and is thus theoretically able to raise the amount of the premium indefinitely, the Bank of England and the Reichsbank, which in contrast to the Bank of France always redeem their notes at their full value in current gold coin and have never attempted to refuse to pay out gold, are able to raise the selling price of bullion only by the amount of the cost of minting and an allowance for wear and tear. Rosendorff, in arguing from the statement that the Bank of France is "theoretically" able to raise the amount of the gold-premium indefinitely, flatly contradicts what he says in the rest of his book. In fact it does not do it, quite apart from the consideration that the law forbids it also. But if it did it, then it would completely alter the character of the French monetary system. It could not be expected that the French government and the Chambers would sanction the transaction to a credit-money standard which would be involved in such a procedure.

100. Thus, in the Compte rendu for 1898 (pp. 12 f.): "Si nous nous efforçons de conserver de grandes disponibilités métalliques et de les ménager le mieux possible, nous ne devons pas non plus perdre de vue les intérêts du commerce et lui refuser les moyens de payement qu'il réclame pour les besoins les plus légitimes, c'est-à-dire pour l'approvisionnement du marché français."

101. See my article Das Problem gesetzlicher Aufnahme der Barzahlungen in Osterreich-Ungarn, p. 1017. If the Austro-Hungarian Bank were to follow the example of the Bank of France in this or some other way it would achieve an exactly opposite result to that achieved by the French institution. Like that of the Bank of France, its action would restrict not merely the efflux but also the influx of gold. In France, the creditor nation, this means something very different from what it means in Austria, the debtor nation. In France, restriction of the importation of capital (which would only exceptionally occur) is unobjectionable; in Austria, the country that is dependent on constant importation of capital from abroad, it would have quite a different effect. The fact that there was a possibility of difficulties in subsequently repatriating the capital would mean that a greater gap than otherwise would have to occur between the Viennese and the foreign rates of interest before capital would be sent to Austria, and this would mean that the rate of interest in Austria would always be higher. The fact, on the other hand, that the export of Austrian short-term capital would also not be profitable except when there was a greater gap than otherwise between the home and foreign rates would not counteract the above disadvantage, because the question of capital exportation from Austria-Hungary to western countries very seldom arises.

102. See Koch, op. cit., p. 79; Die Reichsbank 1876-1900 (Berlin, 190l), p. 146.

103. See Obst, Banken und Bankpolitik (Leipzig, 1909), pp. 90 f.; Hertz, "Die Diskont und Devisenpolitik der österreichisch-ungarischen Bank," Zeitschrift für Volkswirtschaft, Sozialpolitik und Verwaltung 12 (1903): 496.

104. See Koch, op. cit., pp. 79 ff.; Hertz, op. cit., p. 521; Spitzmüller, "Valutareform und Währungsgesetzgebung," in Oesterreichischen Staatswörterbuch, 2d ed., vol. 2, p. 300.

105. See also Proebst, Die Grundlagen unseres Depositen- und Scheckwesens (Jena, 1908), pp. 1 ff.

106. It is only in very recent years that views on this point in dominant circles have begun slowly to change.

107. [The reader will remember that this was written in 1924. H.E.B.]

108. See Keynes, A Tract on Monetary Reform (London, 1923), pp. 163 ff.

109. See Kant, Werke, vol. 5, Zum ewigen Frieden (Insel-Ausgabe), pp. 661 f.

110. See Horn, Bankfreiheit (Stuttgart, 1867), pp. 376 f.

111. [It should be remembered that this was written in 1924. H.E.B.]

112. See pp. 166 f. above. Fisher particularly refers to this independence (Stabilizing the Dollar [New York, 1920], p. 90) and Anderson similarly affirms it, although in his book The Value of Money he has most severely criticized Fisher's version of the quantity theory of money. See Anderson, The Fallacy of "The Stabilized Dollar" (New York, 1920), pp. 6 f.

113. See pp. 215 ff. and 232 ff. above.

Part IV, Chapter 21

1. See Mises, Human Action (New Haven: Yale University Press, 1949), pp. 204-6.

2. See pp. 139-44 above.

3. About this problem, see Human Action, pp. 463-68.

4. See A. B. Lerner, The Economics of Control (New York, 1944), pp. 307-8.

5. See B. Ruml, "Taxes for Revenue Are Obsolete," American Affairs 8 (1946): 35-36.

6. See chap. 11 above; Human Action, pp. 55-57, 347-49.

7. Part 3 of this book is entirely devoted to the exposition of the trade-cycle theory, the doctrine that is called the monetary- or circulation-credit theory, sometimes also the Austrian theory. See also Human Action, pp. 535-83, 787-94.

8. See Keynes, The General Theory of Employment, Interest and Money (London, 1936), p. 264.

Part IV, Chapter 22

9. For the reasons that led to the establishment of such foreign-exchange equalization accounts, see Human Action, pp. 458-59.

Part IV, Chapter 23

10. About the fundamental error of this point of view, see chap. 19 above.

11. For the only exception to this rule, see next paragraph below.

12. See pp. 493-94 below.

Appendix A

13. See Endemann, Studien in der romanisch-kanonistischen Wirtschafts- und Rechtslehre bis gegen Ende des 17. Jahrhunderts (Berlin, 1874-1883), vol. 2, p. 199.

14. See Voigt, "Die staatliche Theorie des Geldes," Zeitschrift für die gesamte Staatswissenschaft 62: 318 f.

15. Bendixen, Währungspolitik und Geldtheorie im Lichte des Weltkriegs (Munich and Leipzig, 1916), p. 37 (2d ed., 1919, p. 44).

16. Dühring, Cursus der National-und Sozialökonomie, 3d ed. (Leipzig, 1892), pp. 42 ff., 401.

17. See also Palyi, Der Streit um die staatliche Theorie des Geldes (Munich and Leipzig, 1922), pp. 88 ff.

18. Knapp, Staatliche Theorie des Geldes, 3d ed. (1921), pp. 445 ff.

19. To imagine that the state theory is a juristic theory, is to be ignorant of the purpose that a juristic theory of money has to fulfill. Anybody who holds this opinion should refer to any work on the law of contract and note what questions are there dealt with in the chapter on money.

20. Knapp, op. cit., pp. 206, 214.

21. Lexis, "Papiergeld," in Handwörterbuch der Staatswissenschaften, 3d. ed., vol. 6, pp. 987 ff.

22. Schumpeter, "Das Sozialprodukt und die Rechenpfennige," Archiv für Sozialwissenschaft und Sozialpolitik 44: 635, 647 ff.

23. Ibid., pp. 665 f.

24. See above, pp. 168 ff.

25. Knapp, op. cit., p. 281; "Die Beziehungen Oesterreichs zur staatlichen Theorie des Geldes," Zeitschrift für Volkswirtschaft, &c. 17: 440.

26. Knapp, Staatliche Theorie, pp. 6 f.

27. "Alle unsere Nationalökonomen sind Metallisten," Knapp, "Über die Theorien des Geldwesens," Jahrbuch für Gesetzgebung, &c. 33: 432.

28. Knapp, "Die Währungsfrage vom Staat aus betrachtet," Jahrbuch für Gesetzgebung, &c. 41: 1528.

29. Knapp, "Über die Theorien des Geldwesens," p. 430.

30. Ibid., p. 432.

31. See also pp. 332 f. above.

32. From the pamphlet of Ricardo's referred to above it may suffice to quote the following passage only: "A well-regulated paper currency is so great an improvement in commerce that I should greatly regret if prejudice should induce us to return to a system of less utility. The introduction of the precious metals for the purposes of money may with truth be considered as one of the most important steps toward the improvement of commerce and the arts of civilized life; but it is no less true, that, with the advancement of knowledge and science, we discover that it would be another improvement to banish them again from the employment to which, during a less enlightened period, they had been so advantageously applied" (Works, 2d ed. [London, 1852], p. 404). Thus the real appearance of Ricardo's "metallistic indignation."

33. Wieser, Über die Messung der Veränderungen des Geldwerts, p. 542.

34. Wieser, "Theorie der gesellschaftlichen Wirtschaft," Grundriss der Sozialökonomik (Tübingen, 1924), p. 316.

35. See the passages quoted on pp. 125 f. above.

36. See Knapp, Staatliche Theorie, 1st ed., pp. 5, 7.

37. See Zuckerkandl, Zur Theorie des Preises mit besonderer Berücksichtigung der geschichtlichen Entwicklung der Lehre (Leipzig, 1899), pp. 98, 115 f.

38. See Hermann, Staatswirtschaftliche Untersuchungen, 2d ed. (Munich, 1870), p. 444; Knies, Das Geld, 2d ed. (Berlin, 1885), p. 324.

39. Knapp, Staatliche Theorie, p. 5.

40. Bendixen, op. cit., p. 134.

41. See Wieser, "Theorie der gesellschaftlichen Wirtschaft," p. 317.

42. [Of which the present work is a translation. H.E.B.]

43. Philippovich, Grundriss (Tübingen, 1916), p. 275.

44. Ibid.

45. See esp. Knapp, Schriften des Vereins für Sozialpolitik, vol. 132, pp. 560 ff.

46. Knapp, Geldtheorie, staatliche in H. d. S., 3d ed.

47. Philippovich, op. cit.

48. Ibid., pp. 272 ff.

49. Lansburgh, Kriegskostendeckung (Berlin, 1915), pp. 52 ff.

50. Bortkiewicz, Frage der Reform, A. s. P. G., vol. 6, p. 98,

51. See pp. 379 ff. above.

Appendix B

52. See p. 155 above.

53. See also pp. 146 n and 247 n above.

End of Notes.
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