Richard Kerschagl, Zukunftsprobleme der Notenbanken (1967)

Richard Kerschagl’s article examines the future of central banking through the limitations of inherited monetary doctrines and instruments. Moving from Currency and Banking School theories to institutional conflicts, it argues that monetary stability cannot be secured through monetary measures alone when governments and organized interests independently shape wages, prices, budgets, and trade.

The historical analysis begins with the conditions presupposed by Currency theory:

Dieser Gedanke der nonintervention in einer rein liberalen Wirtschaftsstruktur beruht auf der Vorstellung, daß erstens bei unbeschränkter Konvertibilität in Gold der Außenkurs einer Währung nur um die sogenannten beiden Goldpunkte schwanken könne.

English translation: This idea of nonintervention within a purely liberal economic structure rests on the notion that, first, with unlimited convertibility into gold the external rate of a currency could fluctuate only within the so-called two gold points.

Gold convertibility and unrestricted movements of goods and capital were supposed to generate automatic adjustments in exchange rates, prices, and trade balances. Kerschagl challenges this framework because its institutional prerequisites no longer hold. He also questions its unequal implications for gold-producing and other countries. Banking theory, by contrast, links note issuance to production through commercial bills and permits active monetary management:

Damit aber dieser Apparat gehörig funktionieren könne, geht sie von dem Prinzip der Automatik und der nonintervention ab.

English translation: But in order that this apparatus may function properly, it departs from the principle of automatism and of nonintervention.

Abandoning automatic adjustment does not eliminate the theory’s weaknesses. Credit repayment cannot guarantee that new purchasing power and saleable goods appear simultaneously. The timing and composition of production matter: producer goods and consumer goods enter circulation differently, while machinery’s economic value depends on its productive use. Both traditions therefore require scrutiny beyond quantitative relations between money and goods.

Kerschagl extends this criticism to discount policy, open-market operations, and minimum reserves. Interest-rate changes influence capital movements through confidence, liquidity preferences, and investment horizons, not yield alone. Their domestic effects depend on firms’ financing arrangements, capital intensity, and other costs. Higher rates may burden public borrowing, conflict with full employment, and raise production costs rather than simply restrain prices. Wage and tax increases can overwhelm their effects. The discount rate may thus work more effectively as a warning signal than as a direct stabilizing mechanism.

Open-market operations likewise depend on legal powers, fiscal obligations, and suitable securities. Gold-cover requirements and government debt support can constrain central-bank action, while thin securities markets can render formal powers ineffective. Reserve requirements extend control over commercial banks as deposit money grows in importance. They provide quantitative leverage when coordinated with other instruments, but their effects remain conditioned by inflationary pressures, deposit movements, and differences among deposit categories. Kerschagl favors unremunerated reserves while recognizing their costs to banks and borrowers.

The methodological principle underlying these criticisms is explicit:

In jeder Wirtschaftspolitik, also auch in der Währungspolitik, gilt in hohem Grade hinsichtlich deren Wirksamkeit und Zweckmäßigkeit die nicht nur im Recht, sondern auch in der Wirtschaft, voll zur Geltung kommende clausula rebus sic stantibus.

English translation: In every economic policy, and hence also in monetary policy, there applies to a high degree, with regard to its effectiveness and expediency, the clausula rebus sic stantibus, which comes fully into its own not only in law but also in economics.

Policy effectiveness depends on circumstances: instruments cannot be assessed independently of the institutions and behavior through which they operate. Quantitative analysis must accommodate qualitative and psychological factors, alongside the difficulty of measuring income flows and liquidity preferences reliably.

The institutional diagnosis follows from this conditional understanding. Governments and organized interests influence central-bank decisions without granting the bank equivalent authority over budgets, trade, or wage-price agreements. Economic research can improve advice but cannot replace missing powers. Commercial obligations and profit requirements may also conflict with economy-wide responsibilities. Where full employment and monetary stability clash, Kerschagl gives priority to currency stability.

His remedy shifts attention from technical refinement to economic coordination. He envisages cabinet representation carrying an unconditional veto on economic questions, or at least decisive participation in wage-price policy. Parliamentary contacts and publicity could reinforce this position, but consultation without effective authority would remain insufficient. This proposal reveals a tension between his resistance to comprehensive economic planning and his demand for extensive influence over nonmonetary decisions. Central banking’s future consequently becomes a question of institutional power: whether an authority charged with monetary stability can fulfill that responsibility without control over major determinants of purchasing power.