On the Manipulation of Money and Credit. Людвиг фон Мизес

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СКАЧАТЬ world market. This is the actual situation. The foreign exchange, with which reparations obligations are paid, comes from sales abroad of German capital and commodities. The only difference consists in how the government obtains the foreign exchange. In this case, the government first buys the foreign exchange abroad with marks, which the foreigners then use to make purchases in Germany, rather than the German government’s acquiring the foreign exchange from those within Germany who have received payment for previous sales abroad.

      From this one learns that the continuing depreciation of the German mark cannot be the consequence of reparations payments. The depreciation of the mark is simply a result of the fact that the government supplies the funds needed for the payments through new issues of notes. Even those who wish to attribute the decline in the rate of exchange on the market to the payment of reparations, rather than to inflation, point out that the quotation for marks is inevitably disturbed by the government’s offering of marks for the purchase of foreign exchange.³ Still, if the government had available for these foreign exchange purchases only the number of marks which it received from taxes or loans, then its demand would not exceed the supply. It is only because it is offering newly created notes that it drives the foreign exchange rates up.

5. The Government’s Dilemma

      Nevertheless, this is the only method available for the German government to defray the reparations debt. Should it try to raise the sums demanded through loans or taxes, it would fail. As conditions with the German people are now, if the economic consequences of compliance were clearly understood and there was no deception as to the costs of that policy, the government could not count on majority support for it. Public opinion would turn with tremendous force against any government that tried to carry out in full the obligations to the Allied Powers. It is not our task to explore whether or not that might be a wise policy.

      However, saying that the decline of the value of the German mark is not the direct consequence of making reparations payments but is due rather to the methods the German government uses to collect the funds for the payments, by no means has the significance attached to it by the French and other foreign politicians. They maintain that it is justifiable, from the point of view of world policy, to burden the German people with this heavy load. This explanation of the German monetary depreciation has absolutely nothing to do with whether, in view of the terms of the Armistice, the Allied demand, in general, and its height, in particular, are founded on justice.

      The only significant thing for us, however, since it explains the political role of the inflationist procedure, is yet another insight. We have seen that if a government is not in a position to negotiate loans and does not dare levy additional taxation for fear that the financial and general economic effects will be revealed too clearly too soon, so that it will lose support for its program, it always considers it necessary to undertake inflationary measures. Thus inflation becomes one of the most important psychological aids to an economic policy which tries to camouflage its effects. In this sense, it may be described as a tool of anti-democratic policy. By deceiving public opinion, it permits a system of government to continue which would have no hope of receiving the approval of the people if conditions were frankly explained to them.

      Inflationist policy is never the necessary consequence of a specific economic situation. It is always the product of human action—of man-made policy. For whatever the reason, the quantity of money in circulation is increased. It may be that the people are influenced by incorrect theoretical doctrines as to the way the value of money develops and are not aware of the consequences of this action. It may be that, in full knowledge of the effects of inflation, they are purposely aiming, for some reason, at a reduction in the value of the monetary unit. So no apology can ever be given for inflationist policy. If it rests on theoretically incorrect monetary doctrines, then it is inexcusable, for there should never, never be any forgiveness for wrong theories. If it rests on a definite judgment as to the effects of monetary depreciation, then to want to “excuse it” is inconsistent. If monetary depreciation has been knowingly engineered, its advocates would not want to excuse it but rather to try to demonstrate that it was a good policy. They would want to show that, under the circumstances, it was even better to depreciate the money than to raise taxes further or to permit the deficit-ridden, nationalized railroads to be transferred from government control to private hands.

      Even governments must learn once more to adjust their outgo to income. Once the end results to which inflation must lead are recognized, the thesis that a government is justified in issuing notes to make up for its lack of funds will disappear from the handbooks of political strategy.

VII

       The New Monetary System

       1. First Steps

      The bedrock and cornerstone of the provisional new monetary system must be the absolute prohibition of the issue of any additional notes not completely covered by gold. The maximum limit for German notes in circulation [not completely covered by gold] will be the sum of the bank­notes, Loan Bureau Notes (Darlehenskassenscheinen), emergency currency (Notgeld) of every kind, and small coins, actually in circulation at the instant of the monetary reform, less the gold stock and supply of foreign bills held in the reserves of the Reichsbank and the private banks of issue. There must be absolutely no expansion above this maximum under any circumstances, except for the relaxation mentioned above at the end of each quarter. [See pp. 15–16.] Notes of any kind over and above this amount must be fully covered by deposits of gold or foreign exchange in the Reichsbank. As may be seen, this constitutes acceptance of the leading principle of Peel’s Bank Act, with all its shortcomings. However, these flaws have little significance at the moment. Our first concern is only to get rid of the inflation by stopping the printing presses. This goal, the only immediate one, will be most effectively served by a strict prohibition of the issue of additional notes not backed by metal.

      Once adjustments have been made to the new situation, then it will be time enough to consider:

      1 On the one hand, whether it might not perhaps be expedient to tolerate the issue, within very narrow limits, of notes not covered by metal.

      2 On the other hand, whether it might not also be necessary to limit similarly the issue of other fiduciary media by establishing regulations over the banks’ cash balances and their check and draft transactions.

      The question of banking freedom must then be discussed, again and again, on basic principles. Still, all this can wait until later. What is needed now is only to prohibit the issue of additional notes not covered by metal. This is all that can be done at present. Ideally, the limitation on the issue of currency could also be extended, even now, to the Reichsbank’s transfer balances (deposits).¹ However, this is not of as critical importance, for the present currency inflation has been and can be brought about only by the issue of notes.

      Simultaneously with the enactment of the prohibition against the issue of additional notes not covered by metal, the Reichsbank should be required to purchase all supplies of gold offered them in exchange for notes at prices precisely corresponding to the new ratio. At the same time, the Reichsbank should be obliged to supply any amount of gold requested at that ratio, to anyone able to offer German notes in payment. With this reform, the German standard would become a gold exchange standard (Goldkernwährung). Later will be time enough to examine whether or not to renounce permanently the actual circulation of gold within the country. Careful consideration should be given to whether or not the higher costs needed to maintain the actual circulation of gold within the country СКАЧАТЬ