Ludwig von Mises · 1919
Ludwig von Mises’s 1919 edited-volume essay examines the monetary conditions for German-Austria’s proposed incorporation into Germany. Its argument moves from Austrian monetary history and the dissolution of the Habsburg currency area to fiscal integration, conversion rates, banking arrangements, and monetary discipline. Mises supports political and monetary union but distinguishes that objective from the conditions necessary to achieve it. Replacing crowns with marks cannot by itself repair public finances or establish a stable currency.
The historical opening establishes a distinction between nominal monetary arrangements and their effective operation. Austria’s participation in the 1857 coinage convention did not mean that its circulating money functioned as a silver currency:
Österreich hatte zur Zeit des Abschlusses des Wiener Vertrages in Wirklichkeit keine Silberwährung, sondern eine Papierwährung mit nicht unbeträchtlichem Silberagio.
English translation: At the time the Vienna Treaty was concluded, Austria in fact had no silver currency, but rather a paper currency with a not inconsiderable premium on silver.
Cash payments resumed in 1858, only to be suspended again under the pressure of war finance. Mises subsequently traces Austria’s movement toward the gold-based crown system introduced in 1892. His account emphasizes the relation between paper money and metallic standards, rather than treating the legal designation of a currency as sufficient evidence of its value. An earlier gold quotation gives this distinction numerical substance:
Der Preis für 100 Gulden Gold (250 Frank) betrug im Durchschnitt des Jahres 1872 110,37 fl.
English translation: The price of 100 gold gulden (250 francs) averaged 110.37 gulden in 1872.
The difference between gold and paper valuations forms part of the background to later stabilization. Exchange-rate stability eventually depended on the Austro-Hungarian Bank’s provision of foreign exchange, despite the absence of a statutory obligation to resume cash payments. Mises also identifies shifting economic interests behind reform: producers who benefited from depreciation could become supporters of stabilization when appreciation threatened their position.
Wartime monetary financing destroyed that settlement. After the monarchy’s collapse, unequal holdings of war bonds and banknotes sharpened conflicts among the successor states. German-Austrian bondholders sought loans against securities whose repayment was uncertain, while other states resisted the resulting note expansion and depreciation. National stamping measures fragmented the common currency; German-Austria followed to prevent excluded notes from entering its territory. For Mises, withdrawing legal-tender status from unstamped notes was the decisive step toward a separate currency. Replacing the notes or establishing a new bank was secondary.
The old bank’s position illustrates the difference between surviving legal privileges and effective authority:
Ihr Notenprivileg läuft allerdings noch bis zum Ende des Jahres 1919 fort; tatsächlich wird es jedoch nur von Deutsch-Österreich geachtet.
English translation: Its note-issuing privilege admittedly continues until the end of 1919; in practice, however, it is respected only by German-Austria.
Monetary integration therefore requires more than an institutional successor to the imperial bank. German-Austria must adopt Germany’s currency if it enters the German state, but both countries possess depreciating paper money and strained public finances. Independent governments sharing a paper currency would dispute the distribution of newly issued money whenever inflation financed their expenditure. A workable union consequently requires either effective restraint or an integration of fiscal authority.
Mises calls for a prior settlement of revenue and expenditure powers, the assumption of appropriate Austrian debts by the Reich, and transitional assistance. He recognizes German-Austria’s disproportionate wartime burdens while separating compensation for those burdens from currency conversion. Businesses’ dependence on borrowing against war bonds also requires attention: abolishing existing central-bank arrangements does not eliminate their credit needs.
The conversion-rate discussion explains exchange rates through relative purchasing power and arbitrage, while recognizing that currency markets anticipate changes not yet reflected throughout domestic prices. New money enters at particular points and spreads gradually, so foreign-exchange depreciation can precede general price increases. This uneven transmission does not yield a separate “true” internal value that statistics can readily establish. Mises therefore prefers neutral-market quotations as the practical basis for conversion. Restoring the prewar crown–mark relation would benefit crown creditors and burden crown debtors generally, rather than selectively compensate public-debt holders. Fiscal redress should instead operate through debt assumption and transitional subsidies.
The institutional discussion compares three routes. A mark-exchange standard would retain Austrian notes with fixed-rate conversion into marks and back again. It could precede political incorporation, but would require Austria to cease independent deficit financing through note creation. Immediate banking union would replace stamped crowns with Reichsbank notes and extend the Reichsbank’s network. Mises distinguishes replacement issuance within an enlarged currency area from additional inflation. Cooperation between formally independent central banks offers nominal Austrian autonomy, but Germany’s economic predominance makes durable independence doubtful. A state bank without note-issuing powers could instead address local credit needs.
The essay’s central contribution is to separate national integration from monetary stability, compensation from conversion policy, and banking organization from government finance. Monetary union remains a political objective, but its durability depends on fiscal arrangements and restraint, not simply on changing the currency’s name or issuer.
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