1. The Economic Position of the Central Powers in the War
The economic aspects of the World War are unique in history in kind and in degree; nothing similar ever existed before nor ever will exist again. This combination of developments was in general conditioned both by the contemporary stage of development of the division of labor and state of war technique, but in particular by both the grouping of the belligerent powers and the particular features of their territories as far as geography and technique of production were concerned.
It worth taking note that the United States government has just surpassed the $18 trillion mark. Of course, that is almost a symbolic mark given the avalanche of debt coming in the form of unfunded future liabilities. Most of these unfunded liabilities are related to promised spending on Social Security, Medicaid, and Medicare, but there are sources as well. We have seen credible sources estimate these liabilities in excess of $200 trillion, but even more optimistic estimates will see the national debt swell to $100 trillion in just a few decades.
VI. The Inflationist Argument
1. Substitute for Taxes
Nowadays, the thesis is maintained that sound monetary relationships may certainly be worth striving for, but public policy is said to have other higher and more important goals. As serious an evil as inflation is, it is not considered the most serious. If it is a choice of protecting the homeland from enemies, feeding the starving and keeping the country from destruction, then let the currency go to rack and ruin. And if the German people must pay off a tremendous war debt, then the only way they can help themselves is through inflation.
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.
VIII. The Ideological Meaning of Reform
1. The Ideological Conflict
The purely materialistic doctrine now used to explain every event looks on monetary depreciation as a phenomenon brought about by certain “material” causes. Attempts are made to counteract these imagined causes by various monetary techniques. People ignore, perhaps knowingly, that the roots of monetary depreciation are ideological in nature. It is always an inflationist policy, not “economic conditions,” which brings about the monetary depreciation. The evil is philosophical in character.
Appendix: Balance of Payments and Foreign Exchange Rates
The printing press played an important role in creating the means for carrying on the war.
Every belligerent nation and many neutral ones used it. With the cessation of hostilities, however, no halt was called to the money-creating activities of the banks of issue. Previously, notes were printed to finance the war.
III. The Return to Gold
1. Eminence of Gold
In the years preceding and during the war, the authors who prepared the way for the present monetary chaos were eager to sever the connection between the monetary standard and gold. So, in place of a standard based directly on gold, it was proposed to develop a standard which would promise no more than a constant exchange ratio in foreign money. These proposals, insofar as they aimed at transferring control over the formulation of monetary value to government, need not be discussed any further.
IV. The Money Relation
1. Victory and Inflation
No one can any longer maintain seriously that the rate of exchange for the German paper mark could be reestablished [in 1923] at its old gold value—as specified by the legislation of December 4, 1871, and by the coinage law of July 9, 1873. Yet many still resist the proposal to stabilize the gold value of the mark at the currently low rate. Rather vague considerations of national pride are often marshaled against it.
V. Comments on the “Balance of Payments” Doctrine
1. Refined Quantity Theory of Money
The generally accepted doctrine maintains that the establishment of sound relationships among currencies is possible only with a “favorable balance of payments.” According to this view, a country with an “unfavorable balance of payments” cannot maintain the stability of its monetary value. In this case, the deterioration in the rate of exchange is considered structural and it is thought it may be effectively counteracted only by eliminating the structural defects.
1. Stabilization of the Monetary Unit — From the Viewpoint of Theory (1923)
In recent years the problems of monetary and banking policy have been approached more and more with a view to both stabilizing the value of the monetary unit and eliminating fluctuations in the economy. Thanks to serious attempts at explaining and publicizing these most difficult economic problems, they have become familiar to almost everyone. It may perhaps be appropriate to speak of fashions in economics, and it is undoubtedly the “fashion” today to establish institutions for the study of business trends.
