Joseph A. Schumpeter: Geldwerttheorie und Währungspraxis

Joseph A. Schumpeter’s 1924 review article uses the second edition of Ludwig Mises’s Theorie des Geldes und der Umlaufmittel to distinguish the requirements of sound monetary practice from the disputed frontiers of monetary theory. Its movement is from Austria’s immediate currency settlement, through an appreciative account of Mises’s theoretical framework, to a qualified disagreement over purchasing-power stabilization. Schumpeter’s central judgment is that Mises offers exceptionally valuable practical instruction even where his theoretical commitments and policy conclusions remain contestable.

The opening presents Austrian monetary policy as a task of consolidation rather than invention. Stabilization has already been achieved; what remains is to legalize it. Apart from the question of valorization, Schumpeter sees few outstanding issues of major importance. A gold basis is unavoidable, although actual gold circulation is not immediately feasible. These choices reflect the constraints imposed on a small state by the wider European situation:

Diesem kleinen Staate werden alle diese Entscheidungen durch die allgemeine europäische Situation vorgeschrieben.

English translation: All these decisions are dictated to this small state by the general European situation.

The controversy surrounding the Schilling legislation therefore exposes, for Schumpeter, a failure of public understanding rather than an absence of available knowledge. Politicians and the public discuss familiar monetary problems as unprecedented events, disregarding both economic science and the repeated lessons of currency history. He endorses Mises’s defense of economics against the accusation that it failed during the war and postwar years: the discipline could have supplied the theoretical insight policy required. This opening establishes the review’s practical purpose. Recommending Mises is a way of reconnecting public debate with knowledge that already exists.

Schumpeter calls the book the best modern German-language work on money and places its author’s achievement within the defense of economic liberalism. His praise is substantial but discriminating. Mises’s intellectual force and distinction do not oblige readers to follow every conclusion to which his temperament leads him. In a book on money and banking, moreover, political allegiance is less important than the quality of the instruction. The work’s exposition of fundamental principles supplies an antidote to the monetary misconceptions circulated during the preceding decade.

The theoretical account is compact. Mises starts from money’s function as a medium of exchange and reserves the status of genuine money for the commodity that actually performs this function because of its exceptional marketability. Banknotes consequently appear as money substitutes. From this foundation he develops a refined quantity theory, culminating in an account of capital interest and crises, while attacking Knapp and his followers. Schumpeter does not present this framework as the uncontested endpoint of monetary analysis. Without adopting Keynes’s extravagant comparison between recent advances in monetary theory and those in modern technology, he accepts that contemporary research has transformed the understanding of money.

The decisive turn is to separate theoretical novelty from practical effectiveness:

Doch gerade mit den Vorurteilen der Praxis räumte Mises viel besser auf, als es vom Standpunkt der modernsten Fassung der Theorie möglich wäre.

English translation: Yet Mises cleared away the prejudices of practical affairs much better than would be possible from the standpoint of the most modern formulation of theory.

Mises’s value thus does not depend on representing the latest theoretical position. His exposition clarifies inflationary and restrictive monetary policies and directs the reader toward keeping money’s objective exchange value as constant as possible. Schumpeter especially emphasizes the explanation of banknote convertibility, clearing arrangements, banking cover, discount policy, and gold-premium policy. One warning has particular importance because it challenges the reduction of inflation to government use of the printing press:

Vor allem tritt das Faktum scharf hervor, dass auch ohne staatliche Inanspruchnahme der Notenpresse, einfach im Wege kommerzieller Kreditgewährung Inflationsgefahren auftreten können, was immer wieder verkannt wird.

English translation: Above all, the fact emerges clearly that inflationary dangers can arise even without the state’s resort to the printing press, simply through the granting of commercial credit—a fact that is repeatedly misunderstood.

The closing disagreement concerns the stabilization proposals associated with Fisher and Keynes. Schumpeter accepts Mises’s warning for Austria: a fresh monetary experiment could endanger a recently secured foundation. But he rejects the broader contention that Fisher’s scheme is unworkable for long-term credit because index numbers are inherently inadequate, while unnecessary for short-term credit. Index-number methods, he argues, have become reliable enough for practical purposes. Stabilization could also prevent some wage disputes and thereby reduce social conflict.

This defense of technical feasibility remains qualified by the institutional danger of political manipulation. Schumpeter distinguishes what Austria should presently attempt from what future monetary policy may reasonably seek:

Wir sind natürlich noch lange nicht so weit, sie ohne Gefahr politischer Manipulation anwenden zu können.

English translation: We are, of course, still far from being able to apply it without the danger of political manipulation.

The article’s relevance lies in this double judgment. Monetary conservatism may be appropriate to a fragile stabilization without proving that improvements in monetary measurement are impossible or undesirable. Schumpeter anticipates an eventual attempt to remove the inconvenience of fluctuating purchasing power, comparing it to the use of a constantly changing unit of length. For the present, however, conscientious adherence to established principles takes priority. Mises’s book earns its strongest endorsement as an unusually effective exposition of those principles, not as a settlement of every theoretical or institutional question.