Key ideas: Год 1967. “Man needs money and cannot exist without it. The diabolic magic of money is here clearly visible. It has helped mankind to make immense strides in economic development, and has at the same time enslaved him. Regression to a money-less condition, or the modern method of exchange by means of money any kind of money, but still money - these are the alternatives. Money plays the role of the sorcerer’s apprentice - created to serve a master who cannot now rid himself of his indispensable sprite. It is the master now.” (From intro)
The invention of money was the pre-condition for the development ofthe modern national economy. Money became the epitome of property. For this reason the need to acquire money is, next to love, the most universal of human urges. How to make money - this question and its attendant problems engages more of man’s thoughts and efforts than almost anything else.
The correct answer to the question is: through work and saving. But work requires exertion, and saving means forgoing the immediate utilisation of income - and thus privation, loss of present comforts. This requires a strength of character not possessed by everyone.
For this reason men’s thoughts .turn to other ways of making money. Such ways, requiring less effort, or at least less physical effort, and offering much scope to human fantasy, have gradually developed in our modem economy.
People are always trying to get something for nothing - to bet, enter lotteries, speculate on the stock exchange, and lend their savings for interest. They speculate not only with their own but also with borrowed money. Here the magic of money actually becomes tangible.
The amount of work involved in these ways of making money is not very great. Men also hope for strokes of good fortune which will make them rich, for accidental discoveries of mineral deposits, for appreciation in the value of land, for gifts from rich benefactors, or even for pennies from heaven. Whichever way is chosen ‘everyone clamours for gold, everything depends on gold’.
On a journey through Turkey. which I made with some friends in 1909 the conversation turned to our future careers. I said ’One day I should like to be·of service to the public, provided that I am then completely independent financially.
I do not wish to be one of those officials who live in a constant state of anxiety because their economic existence depends on strict obedience of their superior’s dictates. As an official I want to be able. to return to private life at any time should my service lead me into conflicts of conscience or conviction.’
Already then· I saw that material. dependance created spiritual bondage. He who works only to order has no pleaure in his work, and loses his creative powers, his initiative, his best faculties. My assertion showed that though I did indeed wish to be fmancially independent, I placed service to the public higher than the mere making of money.
I have often put this concept to the test. When I returned to public life after my acquittal in Nurnberg, Kaisen, the Social Democrat president of the Senate of Bremen, tried to shame me by calling me the highest-paid official of the Nazi regime. I was able to shame him with the reply that when Hitler recalled me to the post of President of the Reichsbank I voluntarily and on my own authority reduced my salary to a third of that I had received under theW eimar republic.
The most succinct description of this state of affairs and its seriousness was given by Oswald Spengler:
Today we live so cowed under the bombardment of this intellectual artillery that hardly anyone can attain to the inward detachment that is required for a clear view of the monstrous drama. Three weeks of press work, and the truth is acknowledged by everybody. Its bases are irrefutable for just so long ·as money is available to maintain them intact. Its arguments are overthrown as soon as the advantage of fmancial power passes over to the counter-argu- ments and brings these still oftener to men’s eyes and ears. Here also money triumphs and forces the free spirits into its service. A more appalling caricature of freedom of thought cannot be imagined.
Formerly a man did not dare to think freely. Now he dares, but cannot.
The Americans have extended the phrase ‘brainwashing’ to apply to this state of affairs. This brainwashing has today become the most important means of shaping public opinion. Usually it goes by the more harmless name of ‘public relations’, and it is practised on a global scale. From innocent beginnings it has developed in some respects in a most ominous way.
The best school is not in the class~room, but in life itsel£
By the end of the war the Mark was worth about half as much as before its outbreak.
A gold Mark (the standard by which the paper currency is measured) was worth two paper Marks. But by November 1923 a gold Mark was worth a billion paper Marks. Written out in full the figure is: 1,ooo,ooo,ooo,ooo. Within five years the German Reichsmark had sunk to one fivehundred-millionth of its value.
To make such comparisons is to play with numbers. But what faced the individual bread… winner trying to maintain his family was no game, but direst need.
Other languages have no equivalent for the word ‘Wahrung’. They call it ‘monnaie’ or ‘currency’ and thus ‘coin’ or ‘circulation mediun1’. The German word expresses most succinctly the real significance of the means of payment: it must ‘last’ (wahren-to last) and it must have stability, i.e. it must maintain its value.
Before state-guaranteed paper money was invented, commodities which had value in their own right were used for money….
Most widely used as mediums of exchange were the metals gold, silver and copper. Gold was the most favoured of them and it has retained its rank as the best means of payment for thousands of years.
Before the war, bank-notes owed their value principally to the fact that the state or the note-issuing bank undertook on demand to exchange the paper money tokens issued by them for gold.
Today this is no longer possible. All the gold in the world would not suffice to effect the exchange of paper money for gold coin
Even in former times it would not have sufficed had all owners of bank- notes presented them for exchange into gold. But such a possibility never had to be allowed for. The bank note was accepted, because everyone had confidence in the state’s ability to pay.
Internationally the gold standard was maintained by the fact that the Bank of England was prepared not only to buy gold at a fixed price, but also to sell it at this fixed price at any time. Even if later on other central banks for their part undertook similar obligations, it was still the world-wide trust in the Bank of England which gave paper money the same status as gold coin.
This trust was so great and so much a matter of course that no- one ever gave a moment’s thought to the fact that the gold standard, which the whole world adopted in the course of the last quarter of the 19th century, was not a currency standard which carried any international obligations.
Each country, even if its central bank was under obligation to exchange paper for gold, had only a national currency i.e. one restricted by law to its own country. The obligation to exchange paper for gold was not of decisive importance for the internal circulation of a currency.
At home the crucial fact was that money had been given the character of ‘legal tender’. This signifies that by law all fmancial obligations contracted within one’s own country, be they to private individuals or to public corporations can be settled by means of the paper notes and coins of the realm which constitute the country’s currency.
This legal provision proved completely fatal to the German currency after the First World War. Due to the continuous and progressive devaluation of the Mark every long-term debt meant heavy losses for the creditor.
Anyone who in 1918 raised a loan over five years and used it to buy land or other durable goods, or anyone who had long-standing debts, was able on the due date in 1923 to repay the nominal amount borrowed with a Mark worth only a fraction of the value of the goods bought with the borrowed money. The borrower obtained durable goods for his money, but the lender only received worthless paper Marks. Anyone with debts grew rich.
Other countries did not escape inflation. But Germany was hardest hit, and in Germany in particular it affected the mass of the people. As in all business and money matters, the educated classes notice and grasp the implications of changes in money value more rapidly than the uninformed man in the street.
Anyone who recognised the inflation in time could safeguard himself against paper money losses by buying, as rapidly as possible, any commodities which, like houses, landed property, manufactured goods and raw materials, would keep their value in contrast to paper money.
The way these people pushed to grow rich by exploiting the ignorant majority led to a moral poisoning of every aspect of busi- ness life. All saving ceased. Anyone unable to find any durable material goods to buy spent all his money as rapidly as possible on all kinds of things giving immediate pleasure.
The less money was worth, the quicker the pace of its devaluation. Great unrest and mounting embitterment afflicted the working classes, professions, the civil service, the office-workers and those living on fixed incomes, who often could not pay for the bare essentials.
Perhaps it will be asked why the workers accepted such devalued money. The answer is simple: because modern man can neither buy nor sell without money. In a natural or barter economy there is no need for money… Man needs money and cannot exist without it.,,
In 1922-23 a whole series of plans aimed at restoring stable money were published, and publicly discussed. I participated only to the extent of suggesting that a means of payment based on gold should be found, a form of money which would be usable only abroad, and which would provide the populace with an index of how far the value of the paper Mark had fallen since yesterday. I regarded the deception of the public over the value of the paper Mark to be particularly unjust socially.
One of the first problems arose over the abolition of emergency money. The origin of this emergency money resembles a satire which precedes the real tragedy of the inflation. It arose simply out of the fact that it was a technical impossibility to provide the multi- coloured paper notes in quantities sufficient to effect all payment transactions. While before the war the presses of the Reichsbank had printed all banknotes, in 1923 133 additional printing firms with 1783 machines were needed to supply the demand. More than thirty paper manufacturers worked at full capacity solely to provide paper for the Reichsbank notes. Yet even with this immense output the Reichsbank was unable to deliver enough banknotes to statisfy the demand.
It often had to ask the provinces, municipalities and individual large concerns to print and put into circulation their own emergency money. In such cases it gave an assurance that it would redeem these emergency notes exactly as if they were its own bank- notes. By the end of 1922 the amount of emergency money in circu- lation already amounted to one tenth of the Reichsbank notes, and by the end of 1923 there was as much emergency money as Reichsbank money.
The result of issuing these emergency notes was that the Reichs-bank lost control over the circulation of money and also stopped presiding over the credit system. If everyone could print his own money, equivalent in value to Reichsbank notes, then the Reichs-bank had to relinquish its position as central bank in control of all currency and credit.
A central currency bank caimot allow competition. If the Renten- bank had been made independent of the Reichsbank, Germany would not only have had two currencies, but also two kinds of credit policy. Each of the two banks would have granted credit after its own lights, and each kind of banknote would have had its own rate of exchange.
The crucial criterion for the approval of the Rentenmark was that it should not be accorded the status of ~legal tender’ which would have made its acceptance for payment legally enforceable.
The notes issued by the Reichsbank did, however, retain their status as legal tender. Only the fact that the Reichsbank at once announced that it would accept the Rentenmark at any time at the same value as its own new Reichsmark, avoided a differentia- tion between the two currencies.
It is true that John Law, the inventor of paper money, recommended a kind of cover based on landed property, but Law too saw that the principal security for paper money lay in confidence in the government, which has legal control over all kinds ofthings which would provide security.
The failure which put an end to Law’s measures was not so much caused by a paper money inflation, as by a collapse of speculative activity in the shares of the overseas enterprises he had founded. The value ofhis paper money was not based on these public companies, but only on their relationship with the state. Law rightly recognised that money, if it does not consist of tangible nietal, is purely an internal affair of the national state. This remains true today.
For this reason there is no such thing as international currency.
For this reason there is no such thing as international currency. It is unlikely that it will ever come into being. International money would have to be granted the status of legal tender in all countries in which it circulates. In all these countries it would have to be possible to settle every state and private obligation in this currency.
Any institution controlling this currency irrespective of whether it is a bank or a government department would dominate the world- an unthinkable situation.
Currency is the most nationalistic factor in political life. Every central bank responsible for issuing it is dependent on the government of the country by whose laws it was instituted, and which makes its notes legal tender in the country’s home territory.
The granting of credit is unthinkable without a central bank. No central bank can be allowed to act against the government of the country. The government is over the central bank, and influences its policies. …
Standing over and above central bank and goveriunent, both of which are led and administered by changing personalities, there is a higher, impersonal, and substantially necessary law: the stability, the constancy of value, of money.
We have seen that during the period of absolute rule even the princes forged their own coinage.
Towards the end of the Seven Years’ War Frederick the Great also resorted to this deception, so that it was said of the silver money coined by his court factor Ephraim, that it had ‘the soul of a rogue, from outside it looked like Frederick, but Ephraim peered out from within’.
The war of 1914 provided telling proof of the fact that state- guarartteed paper money, unlike gold and silver coins, does not represent any substantial value.
Marshal Trivulzio said that three things are necessary to make war: money, money, and yet again money Ludwig XII asked him what armaments and stores would . be required to conquer Milan, and Trivulzio was quite right to assume that he would be able to purchase the necessary arms and provisions with the money then in circulation. With our paper money this is not possible. It does not consist of gold and silver.
The war of 1914 isolated Germany from the greater part of the world market. Even at points where Germany bordered on neutral neighbours, the purchasing power of the Mark was limited to the amount which these countries were able to employ to purchase German goods. The Mark had become unusable on enemy markets. It had lost its purchasing power.
The public was faced with the fact that wars are fought not with money, but with material goods, with soldiers and their equipment, with guns, rifles, vehicles, aircraft, ships, etc. These material goods were made, not of paper money, but of iron and non-ferrous metals, of textiles and many other raw materials. Foodstuffs had to be purveyed, and this could not be done by means of paper money, but only by goods which were wanted as an equivalent.
Raw materials and foodstuffs were not available in sufficient quantities. The principal material goods which, apart from manufactured exports, could be sent to the neutral foreign countries as payment were gold coins and gold.
The available funds were, however, quite insufficient to conduct a war which was to last four years. Thus in addition to the war effort, an export of goods had to be kept alive so that the proceeds might be used to pay for the required materials.
The shortage of raw materials and foodstuffs led to existing stocks being allocated to consumers in strictly limited quantities. The state-managed economic system made its first appearance in modem economic history. Socialisation by public bodies entered into the free capitalistic market economy. War inclines to socialism.
In a war the state is the largest employer and buyer of goods. The state had to fmd money to pay the soldiers and the industrial workers, as well as for all the products required to fight the war. The normal state budget is not sufficient for such out-of-the-ordinary and one-sided needs. The state was thus compelled to resort to making inroads into the income and capital of its citizens.
The mere multiplication of banknotes could result in nothing less than a general rise in the price of goods. For the quantity of goods does not increase merely because the quantity of notes in circulation increases.
Fot this reason the savings of the population had to be mobilised. Such savings could be taken from the populace either by taxation, or by state loans to which the citizens would be exhorted to subscribe.
In 1914 the German government fmanced the war almost entirely by the second alternative. Through state loans it transformed the savings and movables of its citizens into claims on the state. Whether or not these claims would be honoured, depended on the outcome of the war.
This method of fmancing was mistaken.
A state which goes to war must come to terms with the fact that war is a matter of life and death, and that therefore every citizen must participate down to his last savings and last possessions.
A state which goes to war must come to terms with the fact that war is a matter of life and death, and that therefore every citizen must participate down to his last savings and last possessions
Taxes imposed upon the citizen in war-time bring him face to face with the true reality. The war loans given to him in the form of paper in return for his services, only serve to deceive him about the seriousness of the position.
By the war’s end hundreds of milliards of war loan had been taken up by the German public, milliards which defeated Germany would be unable to redeem.
Firstly that it is necessary to possess or have ready access to a quantity of raw materials and foodstuffs sufficient to cover all needs throughoqt the foreseeable or possible duration of the war.
Secondly that those waging the war should be prepared if necessary to devote the whole of the national income to the war effort, and that the necessary sacrifices should be spread justly and evenly. …
Hitler used neither taxation nor the raising of loans to fmance his war. Instead he chose to print banknotes. He paid for all home-produced goods needed to wage war with banknotes which could never have held their original value.
The consequence was another inflation. Legal goods quotas, price control, and restrictions on trade and commerce prevented this inflation from becoming immediately apparent. Its recognisable effects were postponed to the end of the war, but then they became apparent with correspondingly greater distortion.
Both German inflations, that of 1923 and that of 1945, brought changes in incomes and fortunes in their wake which affected different sections of ~ in quite different ways.
Readily realisable monetary resources are more rapidly eroded than hard-to-realise material goods. For this reason owners of money, those who have claims to money, particularly pensioners, and those living on fixed incomes, always suffer more as a result of inflationary falls in the value of money than do owners of tangible assets…
When Austria was annexed in the spring of 1938 Hitler had the bright idea of giving the Austrian Schilling a value higher than its market value of .50 Reichsmark, because he thought he would thereby be giving the Austrian workers a present.
The Reichsmark became legal tender in Austria. While the market would have paid two Schillings for a Reichsmark, one Mark was made equal to one and a half Schillings.
Its effect was that all Austrian prices rose immediately by a corresponding amount so that economically-speaking nothing changed.
What did result, however, was a great deal of office work, because all balance sheets and account books had to be converted to the new parity. All owners of mortgages, bonds etc and thus all the capitalists (amongst whom were many Jews} received a free gift. The masses went away empty handed.
The little man abhorsinflations not only because it makes saving very difficult or impossible, but above all because it makes the rich richer and 1 the poor poorer.
After I had published my warnings in the magazine Quick, I was almost buried in a flood of inquiries, which all asked how one could invest one’s savings in such a way that they would not be affected by the creeping fall in the value of money.
Assets constant in value which can be acquired for small amounts of money are rare, one can almost say they are non-existent. For it is not only a question of preserving value, it is also desirable to hold one’s capital in a form in which it is easily accessible in hard times. Coins, postage stamps, painting, objects d’at, which can be purchased for small sums, are not of much use in times of need.
True, they can be sold for money, but usually their value fluctuates wildly because they are subject to the vagaries of fashion. Such value depends not on the needs, but on the foibles of individuals.
Recently offers by the thousand have been made to the public, inviting and advising them to put their money into postage stamps as an investment. The stamp dealers have made use of the fact that the small man is hard put to it to find assets in which he can invest his small savings.
A similar type of sales propaganda advocates the purchase of coins as an investment. And recently we have even seen sales brochures which extol the virtues of diamonds, and exhort savers to buy them as investments.
To put one’s savings into commodities such as metals, wood, building materials, or articles for everyday use; (domestic goods, tools, etc) is possible. But since such commodities are dealt with in the normal course of trade a costly organisation for their acquisition, storage and sale in case of need is required. A considerable expenditure of one’s own labour and time is also necessary, and there is a great element of risk.
Similar considerations apply to the acquisition of a share in a productive concern, insofar as this is at all possible with small sums of money. This leads one to say that money and monies due offer the only means of saving in order to build up a fortune which is open to the broad masses….
Let us leave the stock exchange in the hands of the professionals and the dedicated speculators; it is not suitable for the saver. The saver need not envy the speculator. He seeks security, not risk.…
In the modern national economy there is only one way to build up a fortune, namely through money and claims on money. The rapid mobility of money is its greatest advantage. Since the small saver always needs some considerable time to accumulate an amount which can be invested in real assets, it is crucial for him that the value of the saved sums should remain constant and easily rendered liquid in the meantime. That is why the savings deposits with savings banks and banks are today growing so much more rapidly than investment in. certified claims to money (bonds, debentures, loans).