Alexander Mahr, “Monetary Stability and How to Achieve It” (1933)

This pamphlet, introduced by Harry D. Gideonse, is a practical interwar argument for rebuilding monetary policy after the instability of the 1920s and the Great Depression. Mahr’s central claim is that monetary law should aim at stabilizing purchasing power through the wholesale-price level. He treats stabilization not as a vague hope for fairness between creditors and debtors, but as an institutional rule for protecting production, employment, and business calculation.

Wholesale prices are of primary importance for industrial activity.

Mahr’s preference for a wholesale index is also a critique of broader “general” indexes and cost-of-living standards. Wages, rents, securities, land, and retail prices may change because of productivity, interest rates, contracts, or distribution costs rather than monetary causes. If such movements were built into the target, the monetary authority would be forced to offset real changes by artificial inflation or deflation. A sound rule must prevent monetary disturbances without freezing every relative price.

It is regarded as a highly objectionable policy if it renders impossible all other changes of the price level, especially its lowering in the case of reduced costs of production.

The essay’s most important theoretical distinction is between “stable” money and “neutral” money. Mahr argues that the Hayekian ideal of neutral money is attractive only because it seems to let real changes proceed undisturbed. In practice, however, it requires policymakers to know and control not just currency and bank money but the whole effective money supply, including velocity and money substitutes. That makes the ideal administratively unusable.

Hence neutral money simply means a constant total supply of money.

Mahr therefore presents wholesale-price stabilization as a more workable rule. It is not mechanical fetishism: he recognizes that harvest shocks and agricultural-price swings could distort the index, and he proposes smoothing devices such as multi-year averages or limited tolerance when farm prices alone move the target. The rule is meant to discipline discretion, not abolish judgment.

The most historically significant part of the pamphlet is Mahr’s reconsideration of the 1920s. Stable wholesale prices did not prevent boom conditions, because rapid technical progress lowered costs and widened profit margins even without rising commodity prices. This showed that price-level stability was not a complete theory of the cycle. Yet Mahr does not abandon stabilization. He argues instead that the decisive policy failure came in the collapse, when credit policy proved unable or unwilling to prevent cumulative deflation.

From this point the pamphlet becomes more activist. Discount-rate policy may be too weak in depression; open-market operations may help but can fail if confidence and demand remain low. Mahr therefore allows credit-financed public works as an anti-depression instrument, provided expansion is governed by a legally defined price-level objective. The index standard supplies the stopping rule that discretionary inflation lacks.

If currency policy, however, is legally directed toward the stabilization of purchasing power, the limit of credit expansion would coincide with the attainment of the intended level of prices.

The closing argument demotes gold from principle to possible camouflage. Gold may be retained tactically to reassure the public, but it should no longer govern policy if it obstructs stabilization. Mahr’s institutional preference is for a transparent monetary rule that exposes both inflationary and deflationary abuse to public control. The pamphlet’s originality lies in combining rules-based monetary stabilization, skepticism toward neutral-money theory, and a conditional defense of credit expansion in depression.