Richard Kerschagl, Zur Frage der Goldwährung (1928)

Richard Kerschagl’s journal review article examines Edmund Herzfelder’s Die Goldwährung als eine Fiktion der Nationalökonomie. Following the book’s division between a critique of existing gold-based currencies and proposals for monetary reform, Kerschagl challenges both its conceptual premises and its practical innovations. His central objection is that Herzfelder confuses a fixed monetary price of gold with a stable economic value of gold. The review nevertheless acknowledges genuine changes in central-bank practice and leaves room for greater international monetary cooperation and reduced dependence on gold.

Herzfelder treats the gold standard as a fiction: fixing the currency price of gold supposedly assumes an enduring equivalence between gold and money despite changes in their relative quantities. Discount policy then becomes another device for maintaining this artificial relation. Kerschagl replies that monetary theory does not require the assumption Herzfelder attacks:

Jeder moderne Werttheoretiker ist sich im klaren, daß es eine Wertstabilität des Goldes in irgendeinem Sinne nicht gibt.

English translation: Every modern value theorist understands clearly that there is no stability of gold’s value in any sense.

For Kerschagl, maintaining gold’s price in currency units under convertibility is distinct from guaranteeing its purchasing power over commodities. Herzfelder’s shifting use of “value” and “price” obscures that distinction and turns an established limitation of the gold standard into an accusation against claims its informed defenders do not make. Kerschagl likewise rejects the proposition that changing the ratio between gold reserves and notes necessarily changes the valuation of either. Recent increases in European central banks’ gold and foreign-exchange reserves, he argues, have occurred without corresponding changes in exchange rates. Higher cover provides greater security for monetary stability, rather than mechanically raising the currency’s value.

The review’s constructive explanation concerns the gold-core standard, more precisely described in the relevant passages as the gold-exchange standard. Against Herzfelder’s assertion that it guarantees a fixed domestic value of gold, Kerschagl identifies its actual objective:

Die Goldkernwährung will keineswegs einen Goldwert stabilisieren, sondern die Goldkernwährung will eine feste Relation der Außenkurse aufrechterhalten, also, wenn wir wollen, den festen Preis ausländischer Devisen und Valuten.

English translation: The gold-core standard by no means seeks to stabilize a value of gold; rather, it seeks to maintain a fixed relationship between external exchange rates—that is, if we wish, the fixed price of foreign exchange and foreign currencies.

The distinction is institutional rather than philosophical. A full gold standard pursues exchange stability indirectly through gold convertibility; the gold-exchange standard pursues it more directly through intervention arrangements and arbitrage. Central banks holding dollar or sterling balances retain an indirect connection to gold because those balances are payable in notes convertible into gold. This arrangement transfers part of the expense and responsibility of maintaining metallic reserves to a reserve centre. It also brings unequal benefits: reserve countries receive relatively cheap funds and acquire influence over other currencies, while depositing central banks earn interest instead of holding unremunerative gold. Kerschagl recognizes both these advantages and the associated disturbances of money markets.

Herzfelder’s proposed alternative would demonetize gold through agreement among economically powerful states. Participating central banks would replace it with mutually exchanged, low-interest government obligations enjoying priority over other public debts. These “priorities” would provide note backing and serve international settlements. Their initial exchange relations would derive from existing gold parities or prevailing currency valuations. A country losing reserves would have to replenish them through borrowing or risk losing its currency’s stability within the arrangement.

Kerschagl’s objection is that the scheme reproduces familiar monetary constraints without demonstrating a compensating advantage. International cooperation already permits substantial economies in gold holdings. Foreign-exchange balances offer more attractive returns than the proposed obligations. Reserve transfers responding to payments imbalances reproduce mechanisms familiar from gold-standard theory, while borrowing to replenish reserves is an established expedient rather than a discovery. Herzfelder also gives insufficient attention to the growing importance of deposit money. Changing the reserve asset does not by itself explain how monetary adjustment could be escaped.

The decisive issue is whether domestic price policy can be conducted independently of external exchange policy. Herzfelder promises considerable autonomy; Kerschagl insists that the two remain connected:

Jeder Versuch der Beeinflussung des Preisniveaus — soweit eine solche überhaupt möglich ist — kann gar nicht anders enden, als entweder mit einer direkten Beeinflussung der Kurse im Wege der Kaufkraftparitäten oder wenigstens mit einer indirekten Beeinflussung im Wege der Handels- und Zahlungsbilanz.

English translation: Every attempt to influence the price level—to the extent that this is possible at all—can only result either in a direct influence on exchange rates through purchasing-power parities or at least in an indirect influence through the trade balance and balance of payments.

Invoking value theory supplies no operational solution to this conflict. Kerschagl considers central banks’ capacity to regulate external rates much stronger than their capacity to control domestic prices, and he finds Herzfelder’s confidence unsupported by a practicable policy mechanism.

The conclusion qualifies the review’s polemical defence of existing institutions. Kerschagl accepts that contemporary Europe lacks the conditions for a general return to a full gold standard. He also envisages contractual cooperation among central banks becoming more important and reducing reliance on gold. His extended presentation of McKenna’s argument about American credit policy shows why: gold can remain an international means of payment while losing its position as the ultimate determinant of monetary value.

Gewiß ist noch nicht volle Klarheit darüber gegeben, welchen endgültigen Platz das Gold in diesem Rahmen haben wird, aber die Art, wie Herzfelder seine Untersuchungen führt, macht stark den Eindruck einer Polemik gegen Behauptungen, die niemand aufgestellt hat, und gegen Nachteile, die gar nicht bestehen.

English translation: Certainly, it is not yet entirely clear what ultimate place gold will occupy within this framework, but the way Herzfelder conducts his investigations strongly suggests a polemic against claims that nobody has made and against disadvantages that do not exist.

The review’s significance lies in this combination of institutional openness and conceptual resistance. Kerschagl does not equate monetary stability with an immutable gold mechanism. He demands instead that reform distinguish prices from values, acknowledge international interdependence, and demonstrate what its proposed institutions accomplish beyond existing central-bank practice.