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The Monetary Policy of Etatism

1 The Monetary Theory of Etatism

Etatism, as a theory, is the doctrine of the omnipotence of the Estate, and, as a policy, the attempt to regulate all mundane affairs by authoritative commandment and prohibition. The ideal society of etatism is a particular sort of socialistic community; it is usual in discussions involving this ideal society to speak of state socialism, or, in some connections, of Christian socialism. Superficially regarded, the etatistic ideal society does not differ very greatly from the outward form assumed by the capitalistic organization of society. Etatism by no means aims at the formal transformation of all ownership of the means of production into state ownership by a complete overthrow of the established legal system. Only the biggest industrial, mining, and transport enterprises are to be nationalized; in agriculture, and in medium- and small-scale industry, private property is nominally to continue. Nevertheless, all enterprises are to become state undertakings in fact. Owners are to be left the title and dignity of ownership, it is true, and to be given a right to the receipt of a "reasonable" income, "in accordance with their position"; but, in fact, every business is to be changed into a government office and every livelihood into an official profession. There is no room at all for independent enterprise under any variety of state socialism. Prices are to be regulated authoritatively; authority is to fix what is to be produced, and how, and in what quantities. There is to be no speculation, no "excessive" profit, no loss. There is to be no innovation unless it be decreed by authority. The official is to direct and supervise everything. [1]

It is one of the peculiarities of etatism that it is unable to conceive of human beings living together in society otherwise than in accordance with its own particular socialistic ideal. The superficial similarity that exists between the socialist state that is its ideal and pattern and the social order based upon private property in the means of production causes it to overlook the fundamental differences that separate the two. Everything that contradicts the assumption that the two kinds of social order are similar is regarded by the etatist as a transient anomaly and a culpable transgression of authoritative decrees, as evidence that the state has let slip the reins of government and only needs to take them more firmly in hand for everything to be beautifully in order again. That the social life of human beings is subject to definite limitations; that it is governed by a set of laws that are comparable with those of Nature; these are notions that are unknown to the etatist. For the etatist, everything is a question of Macht—power, force, might. And his conception of Macht is crudely materialistic.

Every word of etatistic thought is contradicted by the doctrines of sociology and economics; this is why etatists endeavor to prove that these sciences do not exist. In their opinion, social affairs are shaped by the state. To the law, all things are possible; and there is no sphere in which state intervention is not omnipotent.

For a long time the modern etatists shrank from an explicit application of their principles to the theory of money. It is true that some, Adolf Wagner and Lexis in particular, expressed views on the domestic and foreign value of money and on the influence of the balance of payments on the condition of the exchanges that contained all the elements of an etatistic theory of money; but always with great caution and reserve. The first to attempt an explicit application of etatistic principles in the sphere of monetary doctrine, was Knapp.

The policy of etatism had its heyday during the period of the world war, which itself was the inevitable consequence of the dominance of etatistic ideology. In the "war economy" the postulates of etatism were realized. [2] The war economy and the transition economy showed what etatism is worth and what the policy of etatism is able to achieve.

An examination of etatistic monetary doctrine and monetary policy has a significance that is not limited to the history of ideas. For in spite of all its ill success, etatism is still the ruling doctrine, at least on the continent of Europe. It is, at any rate, the doctrine of the rulers; its ideas prevail in monetary policy. However convinced we may be that it is scientifically valueless, it will not do for us nowadays to ignore it. [3]

2 National Prestige and the Rate of Exchange

For the etatist, money is a creature of the state, and the esteem in which money is held is the economic expression of the respect or prestige enjoyed by the state. The more powerful and the richer the state, the better its money. Thus, during the war, it was asserted that "the monetary standard of the victors" would ultimately be the best money. Yet victory and defeat on the battlefield can exercise only an indirect influence on the value of money. Generally speaking, a victorious state is more likely than a conquered one to be able to renounce the aid of the printing press, for it is likely to find it easier to limit its expenditure on the one hand and to obtain credit on the other hand. But the same considerations suggest that increasing prospects of peace will lead to a more favorable estimation of the currency even of the defeated country. In October 1918 the mark and the krone rose; it was believed that even in Germany and Austria a cessation of inflation might be counted upon—an expectation which admittedly was not fulfilled.

History likewise shows that sometimes the "monetary standard of the victors" can prove to be very bad. There have seldom been more brilliant victories than those eventually achieved by the American insurgents under Washington against the English troops. But the American "continental" dollar did not benefit from them. The more proudly the star-spangled banner rose on high, the lower did the exchange rate fall, until, at the very moment when the victory of the rebels was secured, the dollar became entirely valueless. The course of events was no different not long afterward in France. In spite of the victories of the revolutionary army, the metal premium rose continually, until at last in 1796 the value of money touched zero point. In both cases the victorious state had carried inflation to its extreme.

Neither has the wealth of a country any bearing on the valuation of its money. Nothing is more erroneous than the widespread habit of regarding the monetary standard as something in the nature of the shares of the state or the community. When the German mark was quoted at ten centimes in Zurich, bankers said: "Now is the time to buy marks. The German community is indeed poorer nowadays than before the war, so that a low valuation of the mark is justified. Nevertheless, the wealth of Germany is certainly not reduced to a twelfth of what it was before the war; so the mark is bound to rise." And when the Polish mark had sunk to five centimes in Zurich, other bankers said: "This low level is inexplicable. Poland is a rich country; it has a flourishing agriculture, it has wood, coal and oil; so its rate of exchange ought to be incomparably higher." [4] Such observers fail to recognize that the valuation of the monetary unit depends not upon the wealth of the country, but upon the ratio between the quantity of money and the demand for it, so that even the richest country may have a bad currency and the poorest country a good one.

3 The Regulation of Prices by Authoritative Decree

The oldest and most popular instrument of etatistic monetary policy is the official fixing of maximum prices. High prices, thinks the etatist, are not a consequence of an increase in the quantity of money but a consequence of reprehensible activity on the part of "bulls" and "profiteers"; it will suffice to suppress their machinations in order to ensure the cessation of the rise of prices. Thus it is made a punishable offense to demand, or even to pay; "excessive" prices.

Like most other governments, the Austrian government during the war began this kind of criminal-law contest with price raising on the same day that it put the printing press in motion in the service of the national finances. Let us suppose that it had at first been successful in this. Let us completely disregard the fact that the war had also diminished the supply of commodities, and suppose that there had been no forces at work on the commodity side to alter the exchange ratio between commodities and money. We must further disregard the fact that the war, by increasing the period of time necessary for transporting money, and by limiting the operation of the clearing system, and also in other ways, had increased the demand for money of individual economic agents. Let us merely discuss the question, what consequences would necessarily follow if, ceteris paribus, with an increasing quantity of money, prices were restricted to the old level by official compulsion?

An increase in the quantity of money leads to the appearance in the market of new desire to purchase, which had previously not existed; "new purchasing power," it is usual to say, has been created. If the new would-be purchasers compete with those that are already in the market, then, so long as it is not permissible to raise prices, only part of the total purchasing power can be exercised. This means that there are would-be purchasers who leave the market without having effected their object although they were ready to agree to the price demanded, would-be purchasers who return home with the money with which they set out in order to purchase. Whether or not a would-be purchaser who is prepared to pay the official price gets the commodity that he desires depends upon all sorts of circumstances, which are, from the point of view of the market, quite inessential; for example, upon whether he was on the spot in time, or has personal relations with the seller, or other similar accidents. The mechanism of the market no longer works to make a distinction between the would-be purchasers who are still able to buy and those who are not; it no longer brings about a coincidence between supply and demand through variations in price. Supply lags behind demand. The play of the market loses its meaning; other forces have to take its place.

But the government that puts the newly created notes in circulation does so because it wishes to draw commodities and services out of their previous avenues in order to direct them into some other desired employment. It wishes to buy these commodities and services; not, as is also a quite conceivable procedure, to commandeer them by force. It must, therefore, desire that everything should be obtainable for money and for money alone. It is not to the advantage of the government that a situation should arise in the market that makes some of the would-be purchasers withdraw without having effected their object. The government desires to purchase; it desires to use the market, not to disorganize it. But the officially fixed price does disorganize the market in which commodities and services are bought and sold for money. Commerce, so far as it is able, seeks relief in other ways. It redevelops a system of direct exchange, in which commodities and services are exchanged without the instrumentality of money. Those who are forced to dispose of commodities and services at the fixed prices do not dispose of them to everybody, but merely to those to whom they wish to do a favor Would-be purchasers wait in long queues in order to snap up what they can get before it is too late; they race breathlessly from shop to shop, hoping to find one that is not yet sold out.

For once the commodities have been sold that were already on the market when their price was authoritatively fixed at a level below that demanded by the situation of the market, then the emptied storerooms are not filled again. Charging more than a certain price is prohibited, but producing and selling have not been made compulsory. There are no longer any sellers. The market ceases to function. But this means that economic organization based on division of labor becomes impossible. The level of money prices cannot be fixed without overthrowing the system of social division of labor

Thus official fixing of prices, which is intended to establish them and wages generally below the level that they would attain in a free market, is completely impracticable. If the prices of individual kinds of commodities and services are subjected to such restrictions, then disturbances occur that are settled again by the capacity for adjustment possessed by the economic order based on private property sufficiently to make the continuance of the system possible. If such regulations are made general and really put into force, then their incompatibility with the existence of a social order based upon private property becomes obvious. The attempt to restrain prices within limits has to be given up. A government that sets out to abolish market prices is inevitably driven toward the abolition of private property; it has to recognize that there is no middle way between the system of private property in the means of production combined with free contract, and the system of common ownership of the means of production, or socialism. It is gradually forced toward compulsory production, universal obligation to labor, rationing of consumption, and, finally, official regulation of the whole of production and consumption.

This is the road that was taken by economic policy during the war. The etatist, who had jubilantly proclaimed the state's ability to d o everything it wanted to do, discovered that the economists had nevertheless been quite right and that it was not possible to manage with price regulation alone. Since they wished to eliminate the play of the market, they had to go farther than they had originally intended. The first step was the rationing of the most important necessaries; but soon compulsory labor had to be resorted to and eventually the subordination of the whole of production and consumption to the direction of the state. Private property existed in name only; in fact, it had been abolished.

The collapse of militarism was the end of wartime socialism also. Yet no better understanding of the economic problem was shown under the revolution than under the old regime. All the same experiences had to be gone through again.

The attempts that were made with the aid of the police and the criminal law to prevent a rise of prices did not come to grief because officials did not act severely enough or because people found ways of avoiding the regulations. They did not suffer shipwreck because the entrepreneurs were not public spirited, as the socialist-etatistic legend has it. They were bound to fail because the economic organization based upon division of labor and private property in the means of production can function only so long as price determination in the market is free. If the regulation of prices had been successful, it would have paralyzed the whole economic organism. They only thing that made possible the continued functioning of the social apparatus of production was the incomplete enforcement of the regulations that was due to the paralysis of the efforts of those who ought to have executed them.

During thousands of years, in all parts of the inhabited earth, innumerable sacrifices have been made to the chimera of just and reasonable prices. Those who have offended against the laws regulating prices have been heavily punished; their property has been confiscated, they themselves have been incarcerated, tortured, put to death. The agents of etatism have certainly not been lacking in zeal and energy. But, for all this, economic affairs cannot be kept going by magistrates and policemen.

4 The Balance-of-Payments Theory as a Basis of Currency Policy

According to the current view, the maintenance of sound monetary conditions is only possible with a "credit balance of payments." A country with a "debit balance of payments" is supposed to be unable permanently to stabilize the value of its money; the depreciation of the currency is supposed to have an organic basis and to be irremediable except by the removal of the organic defects.

The confutation of this and related objections is implicit in the quantity theory and in Gresham's law. The quantity theory shows that money can never permanently flow abroad from a country in which only metallic money is used (the "purely metallic currency" of the currency principle). The tightness in the domestic market called forth by the efflux of part of the stock of money reduces the prices of commodities, and so restricts importation and encourages exportation, until there is once more enough money at home. The precious metals which perform the function of money are distributed among individuals, and consequently among separate countries, according to the extent and intensity of the demand of each for money. State intervention to assure to the community the necessary quantity of money by regulating its international movements is supererogatory. An undesired efflux of money can never be anything but a result of state intervention endowing money of different values with the same legal tender All that the state need do, and can do, in order to preserve the monetary system undisturbed, is to refrain from such intervention. That is the essence of the monetary theory of the Classical economists and their immediate successors, the Currency School. It is possible to refine and amplify this doctrine with the aid of the modern subjective theory; but it is impossible to overthrow it, and impossible to put anything else in its place. Those who are able to forget it only show that they are unable to think as economists.

When a country has substituted credit money or fiat money for metallic money because the legal equating of the overissued paper and the metallic money sets in motion the mechanism described by Gresham's law, it is often asserted that the balance of payments determines the rate of exchange. But this also is a quite inadequate explanation. The rate of exchange is determined by the purchasing power possessed by a unit of each kind of money; it must be determined at such a level that it makes no difference whether commodities are purchased directly with the one kind of money or indirectly, through money of the other kind. If the rate of exchange moves away from the position that is determined by the purchasing-power parity, which we call the natural or equilibrium rate, then certain sorts of transaction would become profitable. It would become lucrative to purchase commodities with the money that was undervalued by the rate of exchange as compared with the ratio given by its purchasing power, and to sell them for the money that was overvalued in the rate of exchange in comparison with its purchasing power And because there were such opportunities of profit, there would be a demand on the foreign-exchange market for the money that was undervalued by the exchanges and this would raise the rate of exchange until it attained its equilibrium position. Rates of exchange vary because the quantity of money varies and the prices of commodities vary. As has already been remarked, it is solely owing to market technique that this basic relationship is not actually expressed in the temporal sequence of events. In fact, the determination of foreign-exchange rates, under the influence of speculation, anticipates the expected variations in the prices of commodities.

The balance-of-payments theory forgets that the volume of foreign trade is completely dependent upon prices; that neither exportation nor importation can occur if there are no differences in prices to make trade profitable. The theory clings to the superficial aspects of the phenomena it deals with. It cannot be doubted that if we simply look at the daily or hourly fluctuations on the exchanges we shall only be able to discover that the state of the balance of payments at any moment does determine the supply and the demand in the foreign-exchange market. But this is a mere beginning of a proper investigation into the determinants of the rate of exchange. The next question is, What determines the state of the balance of payments at any moment? And there is no other possible answer to this than that it is the price level and the purchases and sales induced by the price margins that determine the balance of payments. Foreign commodities can be imported, at a time when the rate of exchange is rising, only if they are able to find purchasers despite their high prices.

One variety of the balance-of-payments theory attempts to distinguish between the importation of necessaries and the importation of articles that can be dispensed with. Necessaries, it is said, have to be bought whatever their price is, simply because they cannot be done without. Consequently there must be a continual depreciation in the currency of a country that is obliged to import necessaries from abroad and itself is able to export only relatively dispensable articles. To argue thus is to forget that the greater or less necessity or dispensability of individual goods is fully expressed in the intensity and extent of the demand for them in the market, and thus in the amount of money which is paid for them. However strong the desire of the Austrians for foreign bread, meat, coal, or sugar may be, they can only get these things if they are able to pay for them. If they wish to import more, they must export more; if they cannot export manufactured and semimanufactured goods, then they must export shares, bonds, and securities of various kinds. If the note circulation were not increased, then the prices of the objects that were offered for sale would have to decrease if the demand for import goods and hence their prices were to rise. Or else the upward movement of the prices of necessaries would have to be opposed by a fall in the price of the dispensable articles the purchase of which was restricted so as to permit the purchase of the necessaries. There could be no question of a general rise of prices. And the balance of payments would be brought into equilibrium, either by the export of securities and the like, or by an increased export of dispensable goods. It is only when the above assumption does not hold good, only when the quantity of notes in circulation is increased, that foreign commodities can still be imported in the same quantities in spite of a rise in the foreign exchange; it is only because this assumption does not hold good that the rise in the foreign exchange does not throttle importation and encourage exportation until there is again a credit balance of payments.

Ancient Mercantilist error therefore involved a specter of which we need not be afraid. No country, not even the poorest, need abandon the hope of sound currency conditions. It is not the poverty of individuals and the community, not indebtedness to foreign nations, not the unfavorableness of the conditions of production, that force up the rate of exchange, but inflation.

It follows that all the means that are employed for hindering a rise in the exchange rate are useless. If the inflationary policy continues, they remain ineffective; if there is no inflationary policy, then they are superfluous. The most important of these methods is the prohibition or limitation of the importation of certain goods that are deemed dispensable, or at least less indispensable than others. This causes the sums of domestic money that would have been used for the purchase of these commodities to be used for other purchases and naturally the only goods here concerned are those that would otherwise have been sold abroad. These will now be purchased at home for prices that are higher than those offered for them abroad. Thus the reduction of imports and so of the demand for foreign exchange is balanced on the other side by an equal reduction of exports and so of the supply of foreign exchange. Imports are in fact paid for by exports and not by money, as Neo-Mercantilist dilettantism still continues to believe. If it is really desired to dam up the demand for foreign exchange, then the amount of money to the extent of which it is desired to stop importation must be taken away from those at home—say by taxation—and kept out of circulation altogether; that is, not used for state purposes, but destroyed. That is to say, a deflationary policy must be followed. Instead of the importation of chocolate, wine, and lemonade being limited, the members of the community must be deprived of the money that they would otherwise spend on these commodities. Then they must limit their consumption either of these or of some other commodities. In the former case, less foreign exchange will be wanted, in the latter more foreign exchange offered, than previously.

5 The Suppression of Speculation

It is not easy to determine whether there are any who still adhere in good faith to the doctrine that traces back the depreciation of money to the activity of speculators. The doctrine is an indispensable instrument of the lowest form of demagogy; it is the resource of governments in search of a scapegoat. There are scarcely any independent writers nowadays who defend it; those who support it are paid to do so. Nevertheless, a-few words must be devoted to it, for the monetary policy of the present day is based largely upon it.

Speculation does not determine prices; it has to accept the prices that are determined in the market. Its efforts are directed to correctly estimating future price situations, and to acting accordingly. The influence of speculation cannot alter the average level of prices over a given period; what it can do is to diminish the gap between the highest and the lowest prices. Price fluctuations are reduced by speculation, not aggravated, as the popular legend has it.

It is true that the speculator may happen to go astray in his estimate of future prices. What is usually overlooked in considering this possibility is that under the given conditions it is far beyond the capacities of most people to foresee the future any more correctly. If this were not so, the opposing group of buyers or sellers would have got the upper hand in the market. The fact that the opinion accepted by the market has later proved to be false is lamented by nobody with more genuine sorrow than by the speculators who held it. They do not err of malice prepense; after all, their object is to make profits, not losses.

Even prices that are established under the influence of speculation result from the cooperation of two parties, the bulls and the bears. Each of the two parties is always equal to the other in strength and in the extent of its commitments. Each has an equal responsibility for the determination of prices. Nobody is from the outset and for all time bull or bear; a dealer becomes a bull or a bear only on the basis of a summing up of the market situation, or, more correctly, on the basis of the dealings that follow on such a summing up. Anybody can change his role at any moment. The price is determined at that level at which the two parties counterbalance each other. The fluctuations of the foreign-exchange rate are not determined solely by bears selling but just as much by bulls buying.

The etatistic view traces back the rise in the price of foreign currencies to the machinations of enemies of the state at home and abroad. These enemies, it is asserted, dispose of the national currency with a speculative intent and purchase foreign currencies with a speculative intent. Two cases are conceivable. Either these enemies are actuated in their dealings by the hope of making a profit, when the same is true of them as of all other speculators. Or they wish to damage the reputation of the state of which they are enemies by depressing the value of its currency, even though they themselves are injured by the operations that lead to this end. To consider the possibility of such enterprises is to forget that they are hardly practicable. The sales of the bears, if they ran against the feeling of the market, would immediately start a contrary movement; the sums disposed of would be taken up by the bulls in expectation of a coming reaction without any effect on the rate of exchange worth mentioning.

In truth, these self-sacrificing bear maneuvers that are undertaken, not to make a profit, but to damage the reputation of the state, belong to the realm of fables. It is true that operations may well be undertaken on foreign-exchange markets that have as their aim, not the securing of a profit, but the creation and maintenance of a rate that does not correspond to market conditions. But this sort of intervention always proceeds from governments, who hold themselves responsible for the currency and always have in view the establishment and maintenance of a rate of exchange above the equilibrium rate. These are artificial bull, not bear, maneuvers. Of course, such intervention also must remain ineffective in the long run. In fact, there is only one way in the last resort to prevent a further fall in the value of money—ceasing to increase the note circulation; and only one way of raising the value of money—reducing the note circulation. Any intervention, such as that of the German Reichsbank in the spring of 1923, in which only a small part of the increasing note expansion was recovered by the banks through the sale of foreign bills, would necessarily be unsuccessful.

Led by the idea of opposing speculation, inflationistic governments have allowed themselves to become involved in measures whose meaning is hardly intelligible. Thus at one time the importation of notes, then their exportation, then again both their exportation and importation, have been prohibited. Exporters have been forbidden to sell for their own country's notes, importers to buy with them. All trade in terms of foreign money and precious metals has been declared a state monopoly. The quotation of rates for foreign money on home exchanges has been forbidden, and the communication of information concerning the rates determined at home outside the exchanges and the rates negotiated on foreign exchanges made severely punishable. All these measures have proved useless and would probably have been more quickly set aside than actually was the case if there had not been important factors in favor of their retention. Quite apart from the political significance already referred to attaching to the maintenance of the proposition that the fall in the value of money was only to be ascribed to wicked speculators, it must not be forgotten that every restriction of trade creates vested interests that are from then onward opposed to its removal.

An attempt is sometimes made to demonstrate the desirability of measures directed against speculation by reference to the fact that there are times when there is nobody in opposition to the bears in the foreign-exchange market so that they alone are able to determine the rate of exchange. That, of course, is not correct. Yet it must be noticed that speculation has a peculiar effect in the case of a currency whose progressive depreciation is to be expected while it is impossible to foresee when the depreciation will stop, if at all. While, in general, speculation reduces the gap between the highest and lowest prices without altering the average price level, here, where the movement will presumably continue in the same direction, this naturally cannot be the case. The effect of speculation here is to permit the fluctuation, which would otherwise proceed more uniformly, to proceed by fits and starts with the interposition of pauses. If foreign-exchange rates begin to rise, then, to those speculators who buy in accordance with their own view of the circumstances, are added large numbers of outsiders. These camp followers strengthen the movement started by the few that trust to an independent opinion and send it farther than it would have gone under the influence of the expert professional speculators alone. For the reaction cannot set in so quickly and effectively as usual. Of course, it is the general assumption that the depreciation of money will go still farther But eventually sellers of foreign money must make an appearance, and then the rising movement of the exchanges comes to a standstill; perhaps even a backward movement sets in for a time. Then, after a period of "stable money," the whole thing begins again.

The reaction admittedly begins late, but it must begin as soon as rates of exchange have run too far ahead of commodity prices. If the gap between the equilibrium rate of exchange and the market rate is big enough to give play for profitable commodity transactions, then there will also arise a speculative demand for the domestic paper money. Not until the scope for such transactions has again disappeared owing to a rise in commodity prices will a new rise in the price of foreign exchange set in.

Etatism eventually comes to regard the possession of foreign money, balances as such, and foreign bills, as behavior reprehensible in itself. From this point of view, it is the duty of citizens—not that this is asserted in so many words, but it is the tone of all official declarations—to put up with the harmful consequences of the depreciation of money to their private property and to make no attempt to avoid this by acquiring such possessions as are not eaten up by the depreciation of money. From the point of view of the individual, they declare, it may indeed appear profitable for him to save himself from impoverishment by a flight from the mark, but from the point of view of the community this is harmful and therefore to be condemned. This demand really comes to a cool request on the part of those who enjoy the benefits of the inflation that everybody else should render up his wealth for sacrifice to the destructive policy of the state. In this case, as in all others in which similar assertions are made, it is not true that there exists an opposition between the interests of the individual and the interests of the community. The national capital is composed of the capital of the individual members of the state, and when the latter is consumed nothing remains of the former either. The individual who takes steps to invest his property in such a way that it cannot be eaten up by the depreciation of money does not injure the community; on the contrary, in taking steps to preserve his private property from destruction he also preserves some of the property of the community from destruction. If he surrendered it without opposition to the effects of the inflation all he would do would be to further the destruction of part of the national wealth and enrich those to whom the inflationary policy brings profit.

It is true that not inconsiderable sections of the best classes of the German people have given credit to the asseverations of the inflationists and their press. Many thought that they were doing a patriotic act when they did not get rid of their marks or kronen and mark or kronen securities, but retained them. By so doing, they did not serve the Fatherland. That they and their families have as a consequence sunk into poverty only means that some of the members of those classes of the German people from which the cultural reconstruction of the nation was to be expected are reduced to a condition in which they are able to help neither the community nor themselves.

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

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

[3] 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.

[4] 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."

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