Grundsätzliche Bemerkungen zur Valutafrage — Summary

This memorandum treats Austria’s wartime “Valuta” problem as a practical question of economic disorder rather than as a merely formal question of gold cover, note convertibility, or public-bank indebtedness. Schumpeter’s point of departure is diagnostic: the policy problem is visible in domestic prices and foreign exchange, not simply in the institutional fact that the currency has departed from prewar monetary rules.

Die Grundübel, deren Beseitigung das praktische Ziel unserer Valutapolitik sein muß, sind die Preisrevolution und der ungünstige Stand und die Fluktuation der Wechselkurse.

English translation: The fundamental evils whose elimination must be the practical goal of our currency policy are the price revolution and the unfavorable level and the fluctuation of exchange rates.

The argument repeatedly separates real scarcity from monetary disturbance. War has reduced supplies, damaged trade, and disrupted production; these factors raise prices independently of money. Yet Schumpeter insists that they do not exhaust the explanation. The decisive additional factor is the changed relation between commodities and circulating purchasing power. He therefore widens the analysis beyond banknotes narrowly understood: all payment media and their velocity matter. Still, wartime note issue is central because it is not ordinary commercial credit supporting production and then disappearing through repayment. It finances state consumption and remains as purchasing power facing a diminished commodity flow.

Aber neben jenen beiden den zwei erwähnten Grundübeln eigentümlichen Hauptursachen haben Preisniveau und Wechselkurs auch noch eine andere Hauptursache, die Vermehrung der Umlaufsmittel, vor allem der Banknoten.

English translation: But alongside those two main causes peculiar to the two evils mentioned, the price level and the exchange rate have yet another main cause: the increase in the means of circulation, above all of banknotes.

Schumpeter’s causal claim is aimed at a common objection: that the quantity of money merely rose because prices had already risen. He answers by distinguishing transferred purchasing power from newly created purchasing power. Taxes and genuinely subscribed loans reallocate claims already present in the economy; note finance adds claims. Early wartime state demand therefore did not merely express scarcity but intensified it monetarily, pressing additional money demand upon a shrinking supply of goods.

Woraus aber notwendig folgt, daß, wenn selbst die Waren nicht weniger würden, jedoch die in Geld ausgedrückte Nachfrage – also einfach die Menge der Umlaufsmittel bei konstanter Umlaufsgeschwindigkeit – stiege, dasselbe Resultat eintreten muß.

English translation: From which it necessarily follows that, even if the quantity of goods did not diminish, yet if demand expressed in money—that is, simply the quantity of means of circulation at a constant velocity of circulation—were to rise, the same result must ensue.

This is why the memorandum gives a precise meaning to “inflation” and “depreciation.” Not every rise of prices is inflation in the relevant policy sense; inflation names the portion of depreciation caused from the money side. Schumpeter does not deny auxiliary causes—speculation, administrative intervention, foreign-trade imbalance, or psychology—but he subordinates them to the structural excess of monetary circulation over goods. Nor does he make gold the essence of the matter. Gold reserves may help external payments and future stabilization, but the internal depreciation would persist if excessive purchasing power existed in some other monetary form.

The exchange-rate discussion extends the same reasoning outward. Foreign exchange rates fluctuate for many immediate reasons, and technical measures may soften those fluctuations. But the deeper parity between currencies depends on relative purchasing power. Once the crown’s purchasing power has fallen through overissue, the old parity cannot simply be restored by market regulation or patriotic confidence. Foreign-exchange policy can smooth symptoms, not abolish the altered monetary relation that produces them.

Schumpeter’s policy conclusion follows from this ordering of causes. Scarcity may ease after peace, and trade may normalize, but an excessive circulation of payment media will not disappear automatically. Stabilization requires confronting the monetary source of depreciation rather than treating convertibility, gold, or exchange-market technique as sufficient remedies.

Allein das ist gar nicht nötig, um in der Geldmenge eine Hauptursache der Uebel, unter denen unser Verkehr leidet, nachzuweisen.

English translation: But this is not at all necessary in order to demonstrate that the quantity of money is a principal cause of the evils under which our commerce suffers.