Joseph A. Schumpeter, “Kronenanleihe oder Valutenanleihe?” (1921)

This short newspaper policy essay intervenes in the Austrian stabilization debate of 1921. Its scope is the practical choice between a crown-denominated domestic loan and a loan or requisition in foreign currencies, but Schumpeter treats that choice as secondary to a deeper problem: the state’s fiscal disorder. The article’s central move is to separate the fundamental causes of the crown’s weakness from the merely technical forces that intensify it.

Unter den Ursachen der gegenwärtigen Valutenhausse muß man die dauernden Motive der Niedrigbewertung der Krone im Auslande von den technischen Momenten unterscheiden, die verstärkend hinzukommen, aber mit dem Wesen der Sache nichts zu tun haben.

English translation: Among the causes of the present rise in foreign currencies one must distinguish the enduring motives for the low valuation of the krone abroad from the technical factors which come in as reinforcements but have nothing to do with the essence of the matter.

Schumpeter’s main thesis follows immediately: the depreciation of the crown is not, at root, a mechanical consequence of banknote issue, but an expression of the state deficit. Monetary expansion matters, but as one possible mode of financing a fiscal imbalance.

Unsere Krone steht tief infolge des ungeheuren staatlichen Defizits.

English translation: Our krone stands low as a consequence of the enormous state deficit.

From this diagnosis he draws a hard fiscal conclusion. Further taxation cannot plausibly close the gap, because existing burdens already absorb much of productive income. His numerical example of shareholder income is meant to puncture the political slogan that salvation lies simply in taxing the wealthy.

Hier ist nichts mehr zu holen und das Schlagwort vom Heranziehen der Besitzenden kann kaum ernst genommen werden.

English translation: There is nothing more to be got here, and the catchphrase of drawing on the propertied classes can scarcely be taken seriously.

The only durable remedy, therefore, is expenditure reduction and the restoration of order in public finance. Schumpeter then lists the “technical” accelerants of the exchange-rate crisis: tax rules that made foreign currency holdings a rational emergency reserve, the state’s earlier undermining of foreign confidence in the crown, urgent import and debt-covering needs by government and industry, and expected world-market price rises that would increase demand for foreign exchange. Measures such as easing foreign capital inflows or supporting the market may bring relief, but they remain palliatives.

The second half turns from diagnosis to policy design. Schumpeter rejects the idea that the state can simply mobilize private foreign-currency stocks. A forced or semi-forced foreign-currency measure would strike those whose holdings are visible precisely because they were acquired for legitimate business purposes, while concealed reserves would withdraw further from view.

Denn nur jene Valuten werden dem Zugriff ausgesetzt, die sich Geschäftsleute für legitime Zwecke mit dem besten Gewissen und daher ohne Geheimhaltung verschafft haben.

English translation: For only those foreign currencies will be exposed to seizure which businessmen have acquired for legitimate purposes with the clearest conscience and hence without concealment.

This is the article’s key institutional insight: the success of a financial measure depends on the motives and constraints of the holders it targets. Business reserves needed for current transactions cannot be surrendered, while precautionary holdings exist because their owners distrust the state and the crown. Schumpeter therefore defines requisition without euphemism.

Die Aufforderung bedeutet eine Zwangsanleihe in Valuten.

English translation: The demand amounts to a forced loan in foreign currencies.

Nor does voluntariness solve the problem. A foreign-currency loan asks precisely those who hold foreign exchange as protection against the crown to hand that protection to the public authority whose deficit created the danger.

Aber auch eine freiwillige Valutenanleihe kann kaum einen erheblichen Erfolg liefern.

English translation: But even a voluntary foreign-currency loan can hardly yield any significant success.

Schumpeter is also cautious about a domestic crown loan. It cannot manufacture state credit by the act of borrowing; credit presupposes restored confidence, not the reverse. This reverses a common policy illusion: the market cannot be forced to believe in solvency by being asked to finance insolvency.

Der Kredit des Staates kann nicht einfach durch Inanspruchnahme des Geldmarktes wiederhergestellt werden, sondern im Gegenteil: erst wiederhergestelltes Vertrauen und geordnete Wirtschaft können die Basis für den Erfolg großer innerer Anleihen abgeben.

English translation: The credit of the state cannot simply be restored by drawing on the money market; on the contrary, only restored confidence and orderly economic conditions can furnish the basis for the success of large domestic loans.

The final preference for a Kronenanleihe is therefore relative and conditional, not triumphalist. Compared with a Valutenanleihe, it is less destructive, more feasible, and potentially stabilizing because a large domestic subscription would absorb crowns and reduce pressure on foreign exchange.

Aber immerhin ist auf dem Gebiete der Kronenanleihe mehr zu erreichen als auf dem der Valutenanleihe, und eine große Kronenanleihe würde automatisch die Valutenkurse herabdrücken.

English translation: Still, more can be achieved in the field of a krone loan than in that of a foreign-currency loan, and a large krone loan would automatically push down foreign-exchange rates.

The article’s relevance lies in this compact synthesis of fiscal theory, monetary confidence, and policy mechanics. Schumpeter refuses both monetary simplification and confiscatory improvisation: currency stabilization requires credible public finance, and borrowing instruments succeed only when aligned with the actual incentives of economic actors.