Alexander Mahr, “Zur Theorie der Wechselkurse” (1927)

Alexander Mahr’s article is a single-author theoretical study from the Weltwirtschaftliches Archiv (1927). Its scope is exchange-rate formation under ordinary balance-of-payments shocks, inflation, restriction, monetary standards, purchasing-power parity, and speculation. Its main thesis is that durable exchange-rate movements are not explained by trade deficits, capital transfers, or gold shipments alone. With an “ordered” money supply, even reparations or foreign loans can be absorbed; decisive disturbances arise when circulation is inflated or restrictively contracted, and when expectations magnify the movement.

Andererseits ist die Erkenntnis, daß die fortgesetzte Inanspruchnahme der Notenpresse zur Deckung eines staatlichen Defizits unweigerlich zur Kurswertsenkung führt, heutzutage wohl schon Gemeingut der ganzen Welt.

English translation: On the other hand, the insight that the continued resort to the printing press to cover a state deficit inevitably leads to a fall in the exchange rate is today probably common knowledge throughout the world.

Mahr first rejects the classical specie-flow account. Gold movements are too small and wrongly timed to explain the rapid rebalancing of international claims and liabilities. Discount policy and metal shipments can smooth minor deviations, but the main adjustment runs through credit, purchasing power, incomes, prices, and trade.

His constructive move reconciles Angell and Wieser. Angell had stressed changes in credit volume; Wieser had treated the national balance of payments as the sum of individual “personal” payment balances. Mahr turns this into a mechanism: foreign creditors, foreign debtors, and domestic-only actors are joined through corresponding domestic claims and liabilities. External equilibrium is generated by the interdependence of individual balances.

So erscheint das Gleichgewicht in der zwischenstaatlichen Zahlungsbilanz gesichert.

English translation: Thus equilibrium in the international balance of payments appears secured.

This equilibrium is dynamic, not static. If many actors suddenly buy or invest abroad, the exchange rate may fall; but without inflation their reduced domestic spending lowers other incomes, causes sales difficulties and price pressure, restrains imports, and stimulates exports. Reparations, foreign loans, and competitiveness shocks work similarly. Balance-of-payments correction therefore occurs through the domestic circulation of purchasing power, not primarily through bullion drains.

Inflation is the decisive exception. It swells nominal purchasing power without a matching goods flow. The new money appears in individual balances as spendable income; much of it seeks foreign goods and securities, while export supply may decline. Mahr therefore rejects the view that depreciation begins mainly with domestic price rises that induce imports. His price theory distinguishes purely domestic goods, world-market goods, and goods traded only intermittently, since each reacts differently.

This distinction grounds his critique of purchasing-power parity. Price-level ratios cannot reliably determine exchange rates in a world of capital transfers, reparations, tariffs, freight costs, non-traded goods, and changing expectations. More fundamentally, the causal order often runs the other way: the exchange rate can become the datum to which import and export prices adjust.

Der Kausalzusammenhang zwischen Preishöhe und Wechselkurs ist dort, wo er überhaupt besteht, gerade umgekehrter Art: Die Preise der Einfuhrwaren müssen sich auf die Dauer nach dem Stande des intervalutärischen Kurses richten.

English translation: The causal connection between the price level and the exchange rate, where it exists at all, runs precisely the other way: the prices of imported goods must in the long run adjust to the level of the intervaluta exchange rate.

Restriction is the rarer mirror image. Credit tightening reduces nominal incomes, forces sales, weakens imports, strengthens exports, and raises the currency’s external value; but Mahr stresses its limits, since severe restriction produces bankruptcies, unemployment, falling national income, and fiscal crisis. His discussion of metallic standards and paper parities extends the same logic: maintaining parity requires monetary conditions compatible with the partner currency.

The final sections give the article its interwar force. Speculation is not an afterthought but part of exchange-rate causation. Expectations of depreciation may move the exchange market first, then pass unevenly into import prices, export prices, domestic prices, wages, budget deficits, and new note issues. Thus panic can become causal, not merely predictive.

Die spekulative Geldentwertung kann sogar ihrerseits eine Quelle neuer Inflation werden, wie im vorhergehenden Abschnitt gezeigt wurde.

English translation: Speculative currency depreciation can in turn itself become a source of new inflation, as was shown in the preceding section.

The examples—Austria, Germany, Poland, Denmark, Czechoslovakia, and Norway—show panic, confidence, and expected stabilization driving currencies below or above levels justified by current circulation. Germany exemplifies speculative depreciation becoming self-reinforcing; Denmark, speculative appreciation toward gold parity; Czechoslovakia and Norway, swings from undervaluation into overvaluation. The article’s relevance lies in this synthesis: it rejects metal-flow orthodoxy and mechanical PPP while retaining an equilibrium theory rooted in individual balances, credit propagation, monetary policy, and expectations.