Hans Bayer’s journal article, originally published in 1960 and supplied here in a republication of undocumented date, argues that monetary policy and democratic freedom sustain one another. Stable money and effective economic management protect the material conditions of self-government; democratic institutions and responsible participation, in turn, help monetary policy succeed. Its three sections develop an account of money’s economic and social functions, define democratic freedom, and examine their reciprocal connections. The central move is to treat money not merely as a medium of exchange or an instrument of stabilization, but as a distribution of claims and powers that shapes people’s capacity to act.
Bayer begins by opposing two reductions of monetary policy. Older liberal theory separated monetary processes from the supposedly self-regulating real economy and consequently concentrated on monetary value. Modern theory recognized their interdependence but sometimes overestimated monetary instruments, accepting depreciation as the price of supposedly permanent full employment. Bayer instead places monetary policy within general economic policy:
Geldpolitik ist nicht Selbstzweck, sondern stellt ein Mittel im Dienste der Gesamtwirtschaftspolitik dar.
English translation: Monetary policy is not an end in itself, but constitutes a means in the service of overall economic policy.
The first section explains why this subordination requires a broader theory of money. As a claim on the social product, money raises questions of distribution and aggregate demand: under Keynesian assumptions, excessive income inequality can increase saving enough to disrupt economic circulation. As a bearer of power, money enables consumption, education, and entrepreneurial initiative. Unequal access to capital therefore determines whose abilities can become effective. Concentration also allows economic power to influence intellectual and political life.
Bayer organizes these functions through the distinction between Geldwertpolitik, policy directed toward monetary-value stability, and Geldfunktionspolitik, policy securing money’s broader functions. They are mutually supporting, not independent alternatives:
Die Geldfunktionspolitik kann ohne stabilen Geldwert ihre Ziele nicht erreichen, umgekehrt erleichtert die erfolgreiche Geldfunktionspolitik die Geldwertpolitik.
English translation: Policy directed toward money’s functions cannot achieve its aims without a stable monetary value; conversely, successful policy directed toward money’s functions facilitates policy directed toward monetary-value stability.
His criticism of the quantity equation follows this broader approach. It neither establishes causal relations among money, circulation, output, and prices nor captures the psychological importance of confidence. Monetary stability depends partly on citizens’ conduct and trust. Meanwhile, coordinated monetary, credit, and fiscal measures—particularly taxation—can influence distribution and restrain excessive concentration.
The capital market connects Bayer’s concerns about power with his analysis of stabilization. Large enterprises’ growing reliance on self-financing weakens the market’s allocation of investment funds among competing uses. It also reduces the influence of discount-rate changes on those enterprises. Concentration thus threatens both economic coordination and the effectiveness of conventional monetary instruments. Although Bayer credits monetary policy with moderating fluctuations, he leaves open whether it could prevent or adequately counter a collapse comparable to the Great Depression. Fiscal support remains essential.
The second section defines democracy as popular self-government extending beyond parliamentary elections. Participation requires institutions built from below through which individuals and communities help shape economic and social life. Bayer refers to the Sozialakademie Dortmund’s 1958 international conference as evidence that European countries possess such institutions in varying degrees. His concept of ordered freedom binds individual action to the common interest. Negative freedom means freedom from obstruction; positive freedom means the practical ability to carry out decisions made autonomously and responsibly. Purely individualistic liberty, he argues, undermines democracy when it permits power to accumulate among a few.
Subsistence security, political education, social conscience, and institutional guarantees make this freedom effective. People need relief from urgent material insecurity to participate, knowledge to judge economic and social relations, and a sense of obligation to contribute. This account makes distribution constitutive of democracy: formal permission to act is insufficient without resources and effective opportunities.
The third section traces the relationship in both directions. Inflation can undermine livelihoods, while responsible conduct and social conscience can support monetary stability. Distributing income and wealth more widely can give individuals the means to realize their decisions. Restraining concentrated financial power protects people and smaller entrepreneurs against obstruction while expanding their practical capacities. Conversely, participatory institutions can supply the counterpower needed to prevent abuses:
Denn gerade die Ordnung von unten her, die sich nach dem Prinzip demokratischer Freiheit ergibt, kann in wirkungsvollster Weise eine Gegenmacht darstellen.
English translation: For precisely the order built from below, which arises according to the principle of democratic freedom, can constitute a counterpower in the most effective way.
Counterpower does not mean rejecting large enterprises. Bayer acknowledges their contribution to productivity and stability, while arguing that pressure from below can prevent institutional rigidity and preserve dynamism. Nor can monetary technique substitute for structural balance: even well-designed stabilization policy fails without it.
The article’s relevance lies in connecting monetary effectiveness with the distribution of economic agency. Democracy supplies institutional checks and habits of responsibility; monetary policy protects the security and opportunities democratic participation needs. Bayer closes by turning this reciprocal dependence into an obligation:
Demokratie und Freiheit sind kein Geschenk, sondern bedeuten Selbstverwaltung und Selbstverantwortung.
English translation: Democracy and freedom are not a gift, but mean self-government and personal responsibility.
The warning is that citizens who relinquish their role in shaping economic and social life also endanger freedom’s institutional foundations.
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