The Natural Economic Order/Part IV/Chapter 5 I

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I. The Creditor

Nobody, I am sure, will blame me for not being enthusiastic about Free-Money. For has not this innovation reduced the rate of interest, and does it not threaten, if universally adopted, to abolish interest altogether? But I must confess that in some ways the introduction of Free-Money has been, even to me, a relief.

For what was, formerly, the "Mark, German Standard" which the State, the municipalities and private individuals owed me in the shape of Government securities, bills of exchange, mortgages or promissory notes ? I never knew and nobody could tell me!

The State made money out of gold as long as the majority in Parliament so desired. But any day the State could decide to abolish the right of free coinage of gold and demonetise gold, just as it demonetised silver. This has actually happened with the introduction of Free-Money. In adopting these changes the State recognised that the thaler is not a little pile of silver, nor the mark a few grains of gold, but money, and that in abolishing the right of free coinage it was bound to compensate or protect from loss the holders and creditors of money.

The State might have acted differently. It does not want gold; it withdrew gold merely to melt down the coins and sell the metal to the highest bidder for industrial purposes. And this sale, even though cautiously managed, brought the State far less paper-money than it gave for the gold. If the State had not exchanged our gold for Free-Money this loss would have fallen on us. But the safeguarding of our cash is a matter of comparatively small importance in comparison with the recognition that our claims for money (Government loans, mortgages, bills of exchange, and so forth), which are a hundred times greater than the whole amount of the gold money in circulation, and in many cases only fall due fifty years hence, are also to be paid in paper-money with fixed purchasing power, one mark of Free-Money for one mark in gold.

So in this respect I am perfectly safe. I know, now, what a "Mark, German Standard" is: I know that what I gave in goods for a mark I shall receive back in goods, today, tomorrow, always. I receive indeed less interest than I did before, and perhaps later I shall receive no interest at all; but my property, at least, is safe. What is the use of interest when the principal is constantly in danger ? The prices of industrial shares rose and fell with the prices of commodities and it was a commonplace that a fortune was more easily made than kept. The great fortunes of the speculators were built from the ruins of other fortunes. There was also the danger of great discoveries of gold and the possibility that science might some day hit upon the philosopher's stone. Scientists speak of the unity of matter, and say that gold is merely a special form of matter; so that it may become possible to convert any kind of matter into gold. A ticklish business indeed! "Ninety days after sight pay to my order the sum of one thousand marks German Standard", was the tenor of the bills of exchange in my portfolio.

"Let me see" the debtor would have said, "there are some ashes in my stove; I am going to make 1000 gold marks for you. I need only press this button. Here are your 1000 marks in gold; or rather a little more, but that does not matter".

Our laws made no provision against such accidents: the definition of the meaning of the "Mark, German Standard" was left to the decision of Parliament-Parliament in which our debtors might easily obtain the majority.[1]

My situation as a creditor was also rendered precarious by the possibility that the gold standard might be abolished by other countries but retained by ours. Suppose, for example, the United States decided the problem of whether silver or gold should be admitted as legal tender, by demonetising both metals, so as to hold an even balance between the conflicting interests of debtors and creditors. This would have been the most rational solution of the contradictions of American currency policy, and the only way of proving the impartiality of the State. But what would have been the result? The masses of gold which had become useless in America would have flooded Germany, forcing up our prices perhaps 5 0% or even 100 or 200 %, so that I should have lost more from the general rise of prices than at present from the decline of the rate of interest.

Securities payable in marks, German standard, were obviously a risky investment. But now all danger has disappeared. It makes no difference to us whether the United States pass over to a paper currency or to bimetallism, whether the Bank of England puts its gold in circulation, or whether Japan and Russia retain the gold standard. Whether much or little gold is discovered, not a penny is added to or withdrawn from the monetary circulation; whether the existing stock of gold is, or is not, offered for exchange, the German monetary standard is unaffected. Whatever happens I shall get for one mark, German standard, as much merchandise as I gave for it; for such is the conception of the "Mark, German Standard", as legally and scientifically defined. And even should the majority of Parliament consist of debtors who would personally benefit by a reduction in the value of the mark, they could not indulge their desires without an open breach of faith. "The average price of commodities is the fixed and unalterable standard of money. And you have changed this standard, as everybody sees and can test by measurement. You did so for your personal advantage, in order to return less than you borrowed. Therefore you are thieves".

But nobody steals in broad daylight before the public gaze. It is profitable, however, to fish in troubled waters; and with the old currency the waters were troubled, to the great advantage of swindlers. But now the waters have become transparent; the standard of money is something which all men clearly understand.


  1. This aspect of the matter is fully dealt with in the author's pamphlet: Das Monopol der schweizerischen Nationalbank, Bern, 1901.