Alexander Mahr, Die wesentliche Bedingung des Gleichgewichts der Zahlungsbilanz (1951)

Alexander Mahr’s journal article examines the monetary conditions under which international payments tend toward equilibrium. Its German argument proceeds from a critique of purchasing-power parity to a reconstruction of Friedrich von Wieser’s theory of individual payment balances, then tests that reconstruction against trade disturbances, monetary instability, and exchange controls. Appended Italian, English, French, and Spanish summaries restate the argument. Mahr’s central claim is that external equilibrium depends primarily on orderly monetary conditions and the interdependence of individual receipts and expenditures, rather than on exchange rates corresponding to comparative general price levels.

The opening critique distinguishes three difficulties with purchasing-power parity. First, general price indices include domestic goods whose prices need not converge internationally; even traded goods remain subject to freight costs and tariffs. Second, merchandise trade accounts for only part of foreign-exchange demand and supply. Reparations, capital transfers, and debt repayments can require sustained export surpluses and price relationships departing from parity. Third, inflation and deflation produce divergent movements in exchange rates and domestic prices, owing to contractual rigidities and speculation. Mahr’s examples of reparations and increased grain imports after a poor harvest establish a pointed reversal:

Die angeführten Fälle haben das Merkmal gemeinsam, daß gerade die Stabilhaltung der Wechselkurse durch eine — wenn auch vielleicht manchmal geringe — Aenderung der Kaufkraftparität ermöglicht wird; also eine Erscheinung, die ganz im Gegensatz zur Kaufkraftparitätstheorie steht.

English translation: The cases cited share the characteristic that it is precisely the maintenance of stable exchange rates that is made possible by a change in purchasing-power parity—even if perhaps sometimes a small one; thus a phenomenon that stands in complete opposition to purchasing-power-parity theory.

Price adjustment can therefore sustain an existing exchange rate rather than determine a new one. Following monetary upheaval, internationally traded goods must eventually adjust to exchange rates, not necessarily the reverse. Mahr nevertheless retains a practical role for comparing major export and import prices when fixing exchange rates after stabilization: ignoring those relationships can itself precipitate a foreign-trade crisis.

Wieser supplies the constructive starting point. Properly managed households and businesses neither undertake indefinitely unfunded obligations nor leave receipts permanently unused; their payment balances consequently tend toward equilibrium. But Mahr rejects treating national external equilibrium as an immediately established consequence. Balanced individual accounts do not yet explain why foreign claims should equal foreign liabilities, or why a shift from domestic purchases to foreign goods should correct itself.

His three-group model makes the missing interdependence explicit. Group A has net foreign claims and corresponding net domestic liabilities; group B has no external balance; group C has net foreign liabilities and corresponding net domestic claims. Claims and liabilities concern payments falling due within the period, including credit receipts and repayments. Since domestic obligations have domestic counterparts, directly or through intermediaries, A’s domestic deficit corresponds to C’s domestic surplus. Under the model’s assumptions, their external balances likewise offset one another.

Bei geordneten Währungsverhältnissen bewirkt die Tendenz der individuellen Zahlungsbilanzen zum Ausgleich der Aktiven und Passiven eine analoge Tendenz der zwischenstaatlichen Zahlungsbilanz.

English translation: Under orderly monetary conditions, the tendency of individual payment balances toward balancing their assets and liabilities produces an analogous tendency in the international balance of payments.

Mahr gives this accounting relationship a dynamic interpretation. If cheaper foreign products attract additional imports, importers reduce domestic orders, weakening producers’ incomes and the expenditure of their suppliers. Falling purchasing power creates sales difficulties and downward pressure on prices, restricting imports and encouraging exports. An initial export expansion operates in reverse: increased domestic income ultimately encourages imports or foreign investment. Discount-rate increases can reinforce adjustment through credit contraction, not merely by attracting foreign capital. External balance is thus restored through domestic income and expenditure changes, potentially involving a transitional crisis.

These mechanisms have substantial qualifications. Excessive reparations may exceed feasible price reductions and export expansion. Monopolistic price rigidity shifts adjustment toward declining sales, employment, and purchasing power, although intensified export dumping may improve the trade balance. Adjustment also requires time:

Auf jeden Fall ist aber zu bedenken, daß die Wiederherstellung des gestörten Gleichgewichts der Zahlungsbilanz durch Preissenkungen und Exportsteigerungen eine gewisse Zeit beansprucht.

English translation: In any event, however, it must be borne in mind that restoring the disturbed equilibrium of the balance of payments through price reductions and export increases takes a certain amount of time.

The sudden withdrawal of foreign credits in 1931 illustrates this constraint: Germany relied on a standstill agreement, while Britain allowed depreciation. Foreign import restrictions can likewise obstruct the export response. Exchange controls may then substitute administrative allocation for automatic adjustment. Mahr distinguishes this use from maintaining an artificially fixed external currency value during domestic inflation, which undermines export competitiveness and normal trading relations.

The final sections integrate inflation and deflation into the individual-balance framework. Inflation expands nominal receipts faster than the accompanying goods flow; additional purchasing power seeks domestic goods, securities, imports, and ultimately foreign currency as protection against expected depreciation. Deflation contracts credit and receipts, prompting expenditure cuts, forced sales, increased exports, and reduced imports. Speculation accelerates both exchange-rate movements:

Durch das Hinzutreten der Geldwertspekulation werden die Wirkungen einer Inflation oder Deflation auf die Wechselkurse vielfach noch potenziert.

English translation: The addition of speculation on the value of money often further amplifies the effects of inflation or deflation on exchange rates.

Mahr’s explanation is consequently relational: similarly inflationary countries may retain stable exchange rates against one another. He also interprets prewar gold-standard stability primarily through internationally aligned monetary policy, rather than gold movements alone. The article’s distinctive contribution is to connect external adjustment with interconnected private payment balances while identifying the monetary, temporal, and institutional conditions that can disrupt that connection. Equilibrium here is a conditional tendency, not a guarantee of painless adjustment.