Emil Lederer: Review of Gustav Cassel’s Das Geldproblem der Welt. Zweite Denkschrift (1922)

Emil Lederer’s review examines Cassel’s diagnosis of the postwar monetary crisis and his proposal for a stable currency independent of gold. Moving from the causes of deflation through the obstacles to restoring the gold standard, Lederer reaches a consequential objection: monetary stabilization without gold would require substantially broader control over production than Cassel’s proposed instruments appear to acknowledge.

The review opens with the changed conditions that prompted Cassel’s second memorandum. Inflation had given way to American deflation and a world economic crisis. Cassel attributes the downturn to deliberate credit restriction, beginning in Japan in spring 1920 and spreading to the United States. Lederer juxtaposes this explanation with the view of practical observers: disproportionate world production and the collapse of purchasing power in Central and Eastern Europe may instead have brought the boom to an end, making credit contraction a consequence subsequently interpreted as planned deflation. This opening establishes the review’s central methodological tension between monetary explanations and the productive and political conditions within which money operates.

Lederer identifies Cassel’s principal analytical contribution clearly:

Der wichtigste Teil der Denkschrift dient dem Nachweis, daß die Gründung der Weltwährungen auf Gold zunächst nicht möglich und auch für die nächste Zukunft kaum wünschenswert sei.

English translation: The most important part of the memorandum serves to demonstrate that the founding of the world's currencies upon gold is for the present not possible and also, for the near future, hardly desirable.

Gold inflows into the United States had failed to produce the price increases expected by classical theory. Federal Reserve credit restriction instead enlarged metallic reserves while increasing the purchasing power of the dollar and gold, pushing European currencies farther from dollar parity. Lederer endorses Cassel’s judgment that continued American credit policy and reluctance to lend to Europe obstructed a return to gold. Yet he questions an account that insufficiently considers restrictions on the movement of both goods and gold. Gold’s purchasing power was greatest in Germany and Austria, not in the United States; under unrestricted exchange, prevailing prices would therefore tend to draw gold toward Germany. His deliberately stark observation that Germans could nevertheless starve exposes the distance between an abstract adjustment mechanism and economic survival.

Es zeigt sich — ähnlich wie in der ersten Denkschrift — daß die politischen Verhältnisse, die Zwangslage der europäischen Volkswirtschaften nicht voll gewürdigt sind.

English translation: It becomes apparent — as in the first memorandum — that the political conditions, the predicament of the European national economies, are not fully appreciated.

Political constraints, Lederer argues, force movements of money and commodities against economic automatism and continually alter monetary value. Identifying these constraints does not itself remove them. Although he recognizes Cassel’s emphasis on international obligations as a recurring source of disturbance, he insists that the coercive circumstances of European economies must enter the explanation more fully.

The final section turns from diagnosis to institutional consequences. Cassel’s rejection of a return to gold leads him to advocate a currency whose value would be stabilized through alternating inflation and deflation. Lederer accepts the availability of these instruments but disputes the apparent narrowness of their remit:

Diese Mittel sind zweifellos anwendbar, schließen aber die Verpflichtung zu einer viel weitergehenden Regulierung der volkswirtschaftlichen Produktivkräfte in sich als sie bisher von den Notenbanken geübt wurde.

English translation: These means are undoubtedly applicable, but they entail the obligation to a far more extensive regulation of the productive forces of the national economy than has hitherto been practiced by the note-issuing banks.

Without gold as an external anchor, note issuance and discount policy lack sufficiently unambiguous criteria. Cassel’s proposed relationship between wholesale prices and production costs cannot, in Lederer’s view, yield clear operational rules. Stabilization would thus entail control over national production—not merely its pace and employment level, but also what is produced. International interdependence would make this approach nearly equivalent to regulating productive forces themselves. Lederer closes by distinguishing such expansive responsibilities from Irving Fisher’s mechanically specified stabilization program based on statistically measurable criteria. The review’s significance lies in this conceptual move: a proposal to manage monetary value becomes a question about the scope and authority of economic governance.