Alexander Mahr, “National Money Income and Real Market Product”

This file is a single-author theoretical journal article in monetary economics. Mahr studies how national money income, real net market product, and the price level should be coordinated in a credit economy. The two sections move from the desired adjustment of money income to market product to the institutions and multiplier mechanics needed to regulate it.

Mahr starts from the fact that entrepreneurs advance wages and materials before receiving sales proceeds, often through bank credit. When banks fear illiquidity, they restrict loans, hoard cash, shrink deposits, and lower velocity; consumers’ purchasing power then falls short of producers’ costs. The target is a proportional money stream:

Apparently the ideal we should strive for would be an equal growth of monetary income and net market product.

The first section asks whether this target means stable purchasing power or “neutral,” cost-oriented money. Mahr rejects accommodation of monopoly wage and price increases, which would merely finance creeping inflation. He also rejects the claim that the American 1920s collapsed because the Federal Reserve stabilized prices instead of allowing productivity-driven deflation. The crash, he argues, came from stock speculation, installment debt, and post-crash policy failure. More generally, if industrial cost reductions led to falling prices while total money income stayed fixed, elastic demand in progressive branches would draw expenditure away from others and create unemployment. Stable prices are therefore not a barrier to progress but the monetary condition under which productivity gains can expand output without imposing offsetting losses.

This is Mahr’s core conceptual move: technological profit under stable money is non-inflationary. It arises because costs fall, not because monopoly or inflation transfers income.

A policy of stable money creates profits of a non-inflationary character, if we define inflation as an increase of monetary national income beyond real net market product.

Such profits give both incentive and finance for rationalization, inventions, and larger plants. By contrast, monopoly profits, wage-cutting gains, windfalls, and inflationary gains either redistribute income, reduce real wages, or cancel out socially. The policy norm is consequently double:

The aim of currency policy as well as of the entire economic policy should be full employment and a stable level of prices, i. e. neither a stable price level with under-employment nor full employment with a rising price level.

The second section turns to regulation. Private banks cannot secure this norm: in recovery they pursue profitability and overexpand credit; in crisis they seek liquidity and intensify contraction. Central banks, freed from the automatic gold standard and armed with reserve and open-market tools, must coordinate money and output.

Primarily, of course, it can only be the task of the Central Bank to regulate the circulation of the means of payment with the aim of stabilizing the level of prices and thus coordinating closely the movements of money income and quantitative output.

Yet Mahr adds that severe depressions may exceed central-bank remedies. Then government spending must replace the missing money stream caused by credit contraction and hoarding. His technical contribution is to link the multiplier to circuit velocity: investment as well as consumption creates incomes, and the annual effect of an injection depends on how often the added money turns over. To define this process he introduces the allocation period, the time money is tied to financing production before sale proceeds return.

We may call this interval the allocation period of money.

His reading of the New Deal follows from this framework. Deficit spending did raise income, but its effects were weakened by continuing private contraction, premature wage and price regulation, taxes, distrust, and banks’ enlarged reserves. The lesson is not fiscal impotence but the cost of late, contradictory intervention.

Mahr closes by shifting the main modern danger from deflationary collapse to creeping inflation. Governments now know they cannot let money income fall indefinitely below output; the problem is pressure-group politics pushing money incomes above real product through union wages, monopoly prices, and expansive budgets. The article’s relevance lies in its insistence that stable purchasing power is a rule of coordination: it lets full employment, technological profit, and real growth reinforce one another without either depression or inflationary redistribution.