Four Law Drafts
To Fight Deflation, Prevent Inflation, and Lower Interest Rates Together with their Justification
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A Summary of the Teachings
of the German School on Money.
Original Introduction to the Four Law Drafts.
I. Draft of a Law on Stable Value Rechoning and Relievomg the German Central Bank.
II. Draft of a Law on Reich Treasury Notes.
III. Draft of a Law to Facilitate Tax Payments with Debt Certificates and Ledger Claims.
IV. Draft of a Law on Clearing Banks.
Justification of the Four law Drafts by Dr. Walter Zander
Introduction: The Present Situation.
All Previous Measures were Merely Adaptive.
Chapter I: Against Inflation
Chapter II: The Financing of the Public and the Private Sector of the Economy Must Be Seperated Again.
Chapter III: Financing of the Treasury
1. What is the Present Situation of the Treasury?
2. What Possibilities Exist for Raising Money?
3. The Draft of a Law on Treasury Notes
4. The Draft of a Law to Facilitate Tax Payments with Debt Certificates and Ledger Claims.
Chapter IV: Financing of the Private Economy
1. The Reichsbank
2. Clearing Banks
Some Remarks on Details
Dr. Walter Zander
Four Law Draftsby Dr. Best
I. Fundamental Break with the Present System of Political Economy
II. Confrontation of the Two Government Systems in Three Principles
1. Legal Tender (The Principle of Compulsory Acceptance)
3. The Idea of an Honest State
III. The Main Ideas of the 4 Law Drafts
1. The Present Situation as a Starting Point
2. The Restoration of the Short Term Credit of the Reich Through the Issue of Non-Inflatable Treasury Notes
3. The Reich as an Re-Insurance Agaent of the People Against Inflation. A Reich Loan with the Hoarded Stocks of Notes
4. The Restoration of the Long Term Credit of the Reich
5. Clearing Banks Issuing Cheque Money
6. Value Preserving Accounting and Non-Inflatable Currency, According to the Prussian-German System
7. The Recovery of the Reichsbankd and the Deposit System
Four Law Drafts in German
The following law drafts were the result of collaboration. They form a unified whole.
The justification was written by Dr. Walter Zander in commission by the other authors.
Berlin, May 12th, 1932
Dr. Gustav Ramin, Prof. Dr. Heinrich Rittershausen, Prof. Dr. Egbert Munzer, Ulrich von Beckerath, Dr. Hans Meis, Dr. Walter Unger, Dr. Walter Zander.
All authors of the Four Law Drafts are deceased by now.
Other works of Prof. Dr. Rittershausen:
Rittershausen in English
Rittershausen in German
Other works of Ulrich von Beckerath:
Beckerath in English
Beckerath in German
Other works of Dr. Walter Unger:
Other works of Dr. Walter Zander:
First published in May 1932 in German as a manuscript, republished 1979 by Libertarian Microfiche Publishing, in the "Peace Plans" series, for the RESEARCH CENTRE FOR MONETARY AND
FINANCIAL FREEDOM, Sec. John Zube, 35 Oxley St. or P.O.Box
52, Berrima, NSW 2577, Tel. (02) 48 771 436, firstname.lastname@example.org,
as Peace Plans No. 40. Translation by John Zube, using the part translation of
the law draft itself in Edgar Milhaud’s: "Ending the Unemployment and
Trade Crisis", London, Williams & Norgate Ltd., 1935.
Four Law Drafts
The following is a translation of
the Four Law Drafts and their justification written by Dr. Walter Zander.
Further detailed comments can be
Prof. Dr. H. Rittershausen: "Unemployment
as a Problem of Turnover Credits and the Supply of Means of Payment",
pp. 137-187 in : Edgar Milhaud’s: "Ending the Unemployment and
Trade Crisis", London, Williams & Norgate Ltd., 1935, which
will also be reproduced in this series, and Prof. Dr. H. Rittershausen's
Andere System" (The Other System)` , Georg Stilke, Berlin,
1932, which will be reproduced by LMP when a copy can be obtained, and
in a pamphlet by Dr. Best which is here offered for the first time in
The wider context of monetary freedom, which these proposals would realize
only in parts, is described and justified especially in the three works
of Ulrich von Beckerath reproduced in Peace Plans No.s 9-11.
Law Drafts came close to ending the economic crisis in Germany in 1932.
Thereby they could have prevented the rise of the Nazis to power and
thereby World War II. If they had been realized then the threats of
totalitarianism and ABC war would not loom over us, either.
Far from being outdated, these
proposals, or very similar ones, could even now help any country out of an economic
crisis or prevent it. More particularly, they could end or prevent unemployment
and inflation, even stagflation. To realize this as a fact takes considerable
study of the principles and practices of monetary freedom. Unfortunately, so
far only too few were willing to pay this price.
How could these proposals have
prevented the Nazi Regime and WW II? Chancellor Bruening was then in power in
Germany. One of his closest advisors was Dr. Munzer who had already put these
drafts on B.’s desk to be passed as emergency laws.
B. was getting desperate. His previous emergency laws had throttled the economy
still further. He was in political trouble and was ready to try anything new.
These laws would have released the major recuperative energies in the economy.
(See the comments.) He is likely to have signed them, soon, on the strength of
the recommendations he had received. He especially trusted Dr. Munzer’s
judgment. But right then another acute government crisis occurred and 2 or 3
days later, before he could enact these laws, his government had fallen. If
only he had lasted a few days longer in power ...
I appeal to you to have enough
patience to study these law proposals and comments. We may be, again, at a
similar political position where things can go either way. We are certainly in
another economic crisis situation and totalitarianism and WW III may just be
around the corner. Perhaps, again, some days of rational action could just make
all the difference between
crisis and recovery,
dictatorship and freedom,
war and peace -
and your own voice in favor of these
ideas might just be the decisive one. The latter nay be unlikely but is not
impossible. You certainly bet too much on it being untrue.
For the benefit of libertarian
purists it may be necessary to point out here that these legislative proposals
are essentially not proposals for additional monetary legislation but rather
proposals to repeal or bypass the existing monetary legislation which has
established a condition of monetary despotism. The proposals would open the
field for honest and efficient monetary dealings, for laissez faire in the
monetary sphere, for monetary freedom or free banking, instead.
The same line of thought has
recently been pursued by F.A. Hayek in:
"Choice in Currency",
IEA Occasional Paper 48 and in "Denationalization of Money", IEA
Hobart Paper Special No. 70.
The following is an undated
comment to the proposals written by Ulrich von Beckerath probably between 1952
"I would like to make the
following comment to the Four Law Drafts: "Oberregierungsrat"
Munzer, collaborator in the drafts, said to us repeatedly: Bruening is a man of
very superior intelligence. He is also a 100% patriot and would risk his life
for Germany without hesitation and not only that. But of monetary theory he
does not understand much. 'Not much' does here mean that he understands something
of it, e.g. that inflation or devaluation cannot possibly be the right thing in
the middle of a crisis. With this he understands at least more on this than all
bankers and professors taken together for these are continuously demanding a
deterioration of money. What Bruening does not know is the following:
Legal Tender, i.e. forced value
and forced circulation, together with the note-issue monopoly and the right of
creditors (including the workers) to demand cash, are Damocles Swords hanging
over every government and not - as assumed as self-evident by professors and 'practical
- essential supports. To instruct Bruening on this subject is technically
impossible. Bruening has simply no time to listen to lectures on this. He is
suffocating in files. Thus we must confine ourselves to points which Bruening
with his common sense will recognize as right. Our expressions must be of a
kind that they can be understood without difficulties. Thus the clearing
certificates of the clearing banks must not be called notes. The word "tax
foundation" must not be used in the text of the law. Word and concept .are
forgotten; Bruening has, undoubtedly, never heard of it. But the subject can be
described with the example of the 'Reichskassenscheine'
(treasury certificates accepted in tax payments) which still exist. Thus a mind
like Bruening^ will recognize them immediately as right. Of the right of
creditors to payment in cash and its replacement by a claim to clearing we must
not speak at all. These concepts became clear in our discussions. Outside of
our circle nobody knows anything about them.
The Four Law Drafts were
correspondingly worded. They are at least of a kind that their realization
would have abolished the crisis within a few days. The elaboration of this
legislation would have been easy once the crisis would be over. The authority
of Bruening would have increased immeasurably and he could have realized any
further reasonable reform even against the opposition of the bankers and
academics. Moreover, with the crisis at an end, Bruening would have had time
and would have become fully acquainted with the theory. By the way, Munzer’s
position was in the antechamber of Bruening. He was very well acquainted with
him, one could even say befriended. When everyone called for devaluation,
Bruening listened to Munzer and understood him completely. Thus the two, in the
middle of the general disaster, at least saved the currency (the value
The task after the end of the
crisis would have been to prevent its recurrence. For this further laws would
have been necessary. Today the situation is in so far quite different as the
Four Law Drafts are no longer sufficient. Today we need a
programs which would not only take the economic chains off the Germans
but of all the nations in the East. Once this has happened then the Americans,
the English and the French are likely to follow."
Beckerath probably wrote the last
paragraph having in mind some of the ideas he expressed in his post war
"Berlin Program" or considered for his planned revolutionary program
for the countries behind the Iron Curtain.
Here is another relevant short
note of his, dated 4.5.56:
"Draft No. II, par. 4: This clause
I consider to be still necessary today. Only associated shops as issuers would
not require such a clause, in my opinion, because at the first news of a
discount the bearers of the goods warrants would come running to exchange their
goods warrants for goods. Should the goods be missing or cash for redemption,
then immediately, or within less than an hour, the shop management will be
Another more general monetary
comment, putting these Law Drafts in context and defining some fundamental
terms, was put out as a separate leaflet of the Research Centre for Monetary
and Financial Freedom but-not yet included in any of the Peace Plans booklets.
Thus it may serve here as a further introduction to these ideas:
CENTRE FOR MONETARY & FINANCIAL FREEDOM
John Zube, 35 Oxley St., Berrima, NSW, Australia 2577
Paper No. 7
A Summary of the
teachings of the GERMAN SCHOOL ON MONEY
"SOME PRINCIPLES OF MONETARY THEORY
REPRESENTED BY RITTERSHAUSEN, MILHAUD, ZANDER, AND OTHERS."
Written by Ulrich von Beckerath, 1952. First translated into English
& some annotations by John Zube, 1977
part of the PEACE PLANS series No. 40, by John Zube, 35 Oxley St., Berrima, NSW
1.) Inflation and dearness (dearth
or high prices) are completely different concepts. Inflation is caused
exclusively from the monetary side, dearness exclusively from the goods side.
2.) Deflation and cheapness are
completely different concepts. Deflation is caused exclusively from the money
side, cheapness exclusively from the goods side.
3.) Price increases must not be
mixed up with dearness. Price increases may be due to inflation or they can be
caused by a reduction of supply in relation to demand. In the latter case it
would be dearness. Price increases may also be due partly to inflation and
partly to dearness.
4.) Reduced prices should not be
mixed up with cheapness. They might be due to deflation or due to an increase
of the goods offered in relation to the demand. In the latter case only would
it represent a genuine cheapness. The reduced prices
can also be due partly to deflation and partly to a genuine cheapness.
5.) Without legal tender one cannot
inflate a currency.
6.) Without the note issue
monopoly one cannot cause a deflation.
7.) When under a free market rate
(i.e. in the absence of legal tender) an over-issue of a paper money should
occur then it would suffer a discount in circulation so that e.g. a gold coin
of 20 marks would come to cost 21 paper marks. But the goods prices would
remain unchanged, provided only they are fixed in gold units, e.g. gold marks.
8.) If typified and standardized
exchange media are short in circulation (when e.g. during monetary crises
factories are short of means of payment for wages) then those concerned; help
themselves by issuing emergency money without legal tender - until nowhere in
their payment circles does a shortage of the necessary exchange media remain
and the public thus begins to refuse to accept the emergency money at the same
face value as gold or silver coins. The goods prices would remain unchanged
whenever they were determined in gold units (gold marks or grams of fine gold
9.) When paper money is not
redeemable then it will suffice in order to preserve the parity of the paper
money with gold to arrange for the acceptance of the paper money like gold
money by institutions which sell goods in daily and general demand. (Such
institutions are e.g. the taxation department - when it "sells" tax
receipts, the railway, the P.O., and shops which owe something to the bank
issuing that paper money. Their indebtedness may arise out of the discounting
of sound commercial bills and the corresponding contractual obligation to
accept the notes of the bank like gold money. Naturally, in all such cases, the
bank must concede its debtors the right to pay back all their bank debts with
that paper money as soon as they receive it, at par, regardless of the exchange
rate of the paper money.)
10.) When paper money is funded as
under 9) then it can circulate more widely than merely among those who directly
claim the cover involved. When the paper money has tax foundation then it will
circulate not only among those who just then have to pay taxes. If it has shop
foundation (a concept coined by Prof. Rittershausen) then it circulates not
only among those who have to buy something from the shops which are under
acceptance obligation. When the railway issues money (as in Germany in 1923/4
for several 100 million marks) then it circulates not only among those who just
then want to use the railway's services. The tax foundation imparts to paper
money (as apparently Lorenz von Stein found out first) a par value (to gold or
silver coin) for an amount equivalent at least to the tax revenue for at least
3 months, even without legal tender.
11.) The unrestricted right of
people to refuse to accept any paper money offered (Compare par. 2 of Bismarck’s
Bank Act of 1875 and the numerous laws of the confederated German states during
the 100 years before this law was passed.) makes every abuse of the right to
issue, either by the bureaucracy or private persons, impossible.
12.) Inflation, according to the
above, is a condition in monetary transactions where paper money is accepted
without limits and at a prescribed value only because legal tender prevails: a
coercion which makes it legally impossible to account for depreciation by
discount or refusal.
13.) Deflation, according to the
above, is a condition in monetary transactions in which there is a shortage in
typified and standardized exchange media ( so that workers have to be dismissed
because banks cannot or will not advance the means of payment for their wages )
and at the same time, nevertheless, typified and standardized exchange media
(e.g. typified clearing cheques and goods warrants etc. 7 cannot be issued
because a certain authority, e.g. a central bank, has the monopoly for note
14.) Legal tender is the legal
prescription for every recipient of monetary payments to accept paper money or
inferior coins at a fixed value. This forced exchange rate for general means of
circulation, prescribed for every payee, practically for every citizen, must
not be mixed up, as happened in Berlin in the discussion of West & East
marks, with a fixed or controlled exchange rate for foreign exchange. The word
"Zwangskurs" (legal tender) is far older
than 100 years and was always used in the way here described, in royal Prussian
edicts, in imperial Austrian regulations and even by Marx. Another use of it
proves only ignorance of the terminology of economics. Bth. 25/1/52.
SOME NOTES BY JOHN ZUBE, ADDING OR
COMMENTING TO THE ABOVE SUMMARY:
15.) FALLEN prices rust not be mixed up with FALLING prices. The former -tend to
encourage buying and reduce hoarding. They usually originate at the goods side
and lead to corresponding additional turnover, to new orders and employment.
The latter tend to deter buying and lead to deflationary hoarding, sales
difficulties, bankruptcies & unemployment. Moreover, the former tend to
fall step by step according to developments on the goods side (technological
improvements). The latter tend to occur more generally and evenly because they
are due to a deflationary money shortage. This difference may be statistically
indistinguishable but it is of great economic importance. Because of this
distinction price levels cannot rapidly enough adapt to a deflationary
reduction in the money supply - contrary to the expectations and predictions of
most Austrian economists.
16.) A market subject to monetary
despotism isn't free. To prevent and end both inflation
and deflation, capital destruction and unemployment, monetary freedom has to be
17.) A gold standard as an
exclusive currency is very different from a gold standard as a permitted and
preferred but competing currency. It is as differed in its effects as a
creditor's legal claim to payment in gold coins, even when a debtor has none
and cannot obtain any, is from the right of debtors to pay them in gold only
whenever they possess it (or obliged themselves contractually to supply it) and
otherwise and normally to pay only in gold values, in any acceptable currency,
by gold accounting or gold clearing. For the latter there need not be a single
coin of gold in a country, although this would be preferable. The former
amounts often to torturing a deaf and dumb person in order to extract a
confession from him. The latter payment method is available to every productive
person under monetary freedom.
18.) As money cover en serve
anything that is found acceptable by well informed acceptors of a paper money
in a free market.
19.) The issue principle can be
applied not only in the monetary sphere but also in the capital market. There
it can finance e.g. a libertarian take-over of a bureaucratic democracy, a
libertarian revolution in a dictatorship, education, innovation and research,
desert irrigation, even space exploration. Its monetary application is
essential for the conduct of a rightful defensive war.
20.) Redemption in rare metals is
not required to preserve the value of a paper money. It can be replaced by
acceptability under the control of a free market rate. This would leave the
discount possibility as a necessary feature but would generally lead to a par
rate of the paper money on a free gold market. It would not be a gold
convertibility but a gold clearing standard. It would transfer redemption from
the issuer to the free gold market - for whosoever would need it or would be
doubtful or suspicious. This possibility is not sufficiently discussed by the
advocates of a 100% gold dollar.
21.) Inflationary government
spending is not "spending", no more so than private forgery is.
22.) Nobody can create money or
credit out of nothing no more so than creating energy out of nothing. What
appears or is considered as 'creation' is either a forced value, a
transformation system temporarily substituting suitable for unsuitable notes, fraud,
23.) Note to 7: This possibility
of suffering a discount is a necessary feature of a free monetary system. It
would draw depreciated notes quickly out of circulation. They would be paid
back to the issuer who has still to accept then at par. This discount would
thus be welcomed by his debtors. The more the notes are discounted the more
rapidly they would return. With the returned notes the circulation and the
discount would be reduced. It is obvious that while the discount continues new
issues will be hard to impossible. People will simply refuse to accept them -
unless they owe the issuer something.
24.) Without legal tender and
under free monetary competition, each exchange medium being subject to free
market rating and the right to refuse them altogether, the good types of media
and standards would soon drive out the bad ones. These German economists
recognized this truth long before those of the Austrian School.
MONEY IS NOT IMPOSSIBLE -IT IS MERELY OUTLAWED!
GOOD MONEY DRIVE OUT THE BAD: REPEAL LEGAL TENDER!
My human rights draft, resulting
from many discussions with Ulrich von Beckerath in the fifties, using many of
his notes and published first in Peace Plans No. 4 in 1964, contains the
following monetary rights which may also serve as an explanatory introduction
to the Four Law Drafts:
Every rational being has the right
to settle its debts with its assets by clearing and to select the best
technical form for this purpose.
It has the right to try to pay off
its debts with any kind of exchange media. It may not be forced to discharge
them with one particular means of payment only. Nobody may be declared bankrupt
before every possibility for clearing is exhausted.
32.) ISSUE OF MONEY
Every rational .being has the
right to issue and offer as means of payment private money tokens, purchasing
and clearing certificates, banknotes, etc., typified in pieces like money,
provided they are not legal tender but guarantee a certain value instead, e.g.
the value of a certain weight of gold on a free market. In other words, every
rational being has the right to issue private exchange media which entitle the
bearer to exchange them at their stated value into goods and services of the
Every rational being is,
furthermore, entitled to issue freely transferable short, medium and long-term
promissory notes, bonds and other securities, provided that no detail of and
relating to their issue is kept secret.
Comment: This right would
introduce free competition in the field of the supply of exchange media and
would thereby abolish currency and credit shortages. It would establish for the
first time a real free market and would put an end to unemployment, sales,
difficulties,; all depressions. Even people unemployed because of technological
advances would then easily get a loan for retraining and another job. Once a perfect clearing system were established, even individuals
could get their paper accepted. Until then associations of shopkeepers, large
public utility companies and note issuing banks, discounting bills of exchange,
would have the least difficulties in achieving at least a local circulation for
33.) REJECTION OF DETERIORATED
Every human being has the right to
refuse acceptance of exchange media, either completely or at their nominal
value, unless it has issued them itself or has obliged itself to accept them.
This right finds its limit in the
obligation to accept the local currency at its nominal value as long as it is
not deteriorated and nothing to the contrary has been agreed upon.
Comment: This right requires the
repeal of all legal lender laws and privileges and monopolies for the issue of
means of payment. It would make inflations impossible.
34. STANDARD OF VALUE
Every rational being has the right
to invest its capital safely, that is to use in all
business contracts, including e.g. employment, rent, building, and insurance
contracts, declarations and offers, a standard of value or a value protecting
clause of its choice, e.g. a gold clause.
It has, furthermore, the right to
base its own private money tokens on an optional standard of value.
Comment: A freely agreed upon
standard for measuring values may not be interfered with by any law. Lastly,
the most reliable standard would be almost universally and voluntarily
accepted. Most likely it will be the value of a certain weight of gold on a
completely free market.
This moralistic and tolerant
monetary approach was further developed in my special pamphlet: "The case
for economic and political TOLERANCE as the only sound .policy"
which is also largely based on some notes by Ulrich von Beckerath and will be
Gesetzentwürfe sind das Ergebnis einer Gemeinschaftsarbeit. Sie bilden ein
Die Begründung ist im
Auftrage aller übrigen Verfasser von Dr. Walter Zander gefertigt.
Berlin, den 12. Mai 1932.
Dr. Gustav Ramin Heinrich Rittershausen ***
Ulrich von Beckerath Hans
Meis Walter Unger Dr. Walter Zander
*** = Dr. Munzer
I. DRAFT OF A LAW ON STABLE VALUE RECKONING
RELIEVING THE GERMAN CENTRAL BANK
Par. 1:In all payment, and credit
transactions, regardless of the market rate of the means of exchange,
calculations are to be made in stable value units.
Par. 2:(l) Gold is the standard of value.
(2) The reckoning unit is the mark which is divided into 100 Pfennig.
(3) The value of the mark is equal to 1/2790 kilograms of fine
(4) By agreement other value standards than gold may be
Par. 3:Gold coins of the Reich are the
only means of payment that have to be accepted in all transactions without
limits and at their face value.
(Note that in Prof. Rittershausen’s
essay :"Unemployment as a Problem of Turnover Credits and the Supply of
Means of Payment" in Milhaud’s "Ending the Unemployment and Trade
Crisis", which appeared in 1935, this paragraph has been differently
worded and expanded into:
Par. 3: Reich gold coins shall be the sole
means of settlement that must be accepted in economic dealings to an unlimited
extent and at their face value. An obligation to remit gold or coins in
settlement of liabilities valued in marks, does not
Par. 3a: If the debtor offers such, the
creditor shall clear at their face value the matured bonds and goods warrants
made out in marks, which he has accepted. The creditor shall facilitate the
clearing possibilities by placing at his debtor's disposal his goods and
service? ('shop foundation') and by furnishing the address
of his bank. Clearing is the only means of settlement which the creditor must
accept to the extent of the debt involved and at its face value. The provisions
of the Civil Code concerning clearing remain unaffected. The clearing
restrictions in the case of public debtors are hereby repealed.
This is G. Spiller's translation. The original German issue, which appeared in 1934, in "Zahlungsverkehr, Einkaufsscheine und
Arbeitsbeschaffung", Annalen der Gemeinwirtschaft, 10. Jahrgang, Heft 1,
Januar/Juli 1934, has
a footnote stating that the second sentence of par. 3 and par. 3a were added by
Prof. Rittershausen. I like my own translation of par. 3a better,
at least it is more accurate:
Par. 3a: The creditor, whenever the debtor
offers them, has to accept in settlement and at their nominal value his own due
bonds and goods warrants which are expressed in marks, and also those of his
creditors. The creditor has to facilitate the possibility of clearing by making
his goods and services available ('shop foundation') as is practice in his
profession, and by naming his bank.
Clearing is the only means of settlement
which must be accepted by the creditor in trading, at nominal value and up to
the amount of his debt.
The clauses of the Civil Code on clearing do
not apply. The restrictions on clearing by debtors of public bodies are
Read Prof. Rittershausen’s whole
essay for the reasons for this addition which are not self-evident. End of this
note. The following continues the original text.
Par. 4:(l) There is no obligation to
accept banknotes in payments which are legally to be paid in money.
(2) Par. 3, sect. 2 of the Bank
Act of 30/8/1924 is hereby repealed.
(3) In Par. 5, section 1, sentence
la of the Coinage Act of 30/8/1924, the following words shall be deleted : "and the notes issued by the Reichsbank and
payable in Reichsmark".
(l)The officially approved German
Stock Exchanges shall daily determine and publish the rate, in Reichsmarks, for the Reich banknotes.
(2)Until a free gold market has
been established in Germany, the rate shall be fixed by conversion of the
official London gold rate on the basis of the average rate of the Reich banknotes
for settlement in London.
In cases of doubt rate variations
of the customary means of payment of 1% of the nominal value, upwards or downwards,
shall be ignored.
Par. 7:Should the determination or
publication of the market rate for a means of payment not take place or should
only a restricted allotment of gold and foreign exchange occur for a period of
more than 6 Exchange days, then the creditor is entitled to refuse to accept
what is offered as long as the determination or publication of the rate remain
suspended or the restricted allotment continues.
Par. 8:Should a settlement be effected by
a remittance of Reich banknotes then their acceptance terminates the debt
Par. 9:The debt relationships existing
when this Act comes into force are considered as stable value relationships.
(l) From the day this Act comes
into force, the Reichsbank has to issue new banknotes. These banknotes are to
have continuous numbering. The day of their issue is to be noted on them. They
must he clearly distinguishable from the Reich banknotes issued so far.
(2) All Reichsbanknotes
circulating on the day this Act comes into force, are to be withdrawn and
destroyed by December 31, 1936. Cheque accounts may no longer be established
(l) For the new issue of Reichsbanknotes the rules of the Bank Act apply but with
the following additional provision: New notes may only be issued when, during
the months preceding the issue, one quarter of all credits have been repaid
which were outstanding at the beginning of this month and granted after this Act
came into force. (Reflux)
(2) Prolongations of an existing
debt relationship, no matter in what form, do not count as amortization.
banknotes circulating when this Act comes into force, will be accepted up to
December 31, 1932, by all cashiers of the Reich, the states and municipalities
(municipal associations), public religious bodies, and social insurance
companies in payment of all dues and contributions at their full nominal value,
also in advance payment of taxes.
The Reichsbank has to accept the
notes issued by it at any time and at their full nominal value in payment for
all its claims.
The Reichsbank has to destroy all Reichsbanknotes which flow back to it.
(l) The weekly releases of the Reichsbank
have to contain the following, apart from the details prescribed by par. 36 of
the Bank Act of 30.8.1924:
1. On the debit side:
The amount of circulating notes, separated
according to whether they were issued before or after this Act came into force.
2. On the credit side:
The inventory of "other bills of
exchange and cheques", separated according to whether they were purchased
or taken as security for credits before or after this Act came into force.
Prolongations of debt relationships, no matter in what form, are to be shown by
their amount, date of origin and grouped according to size (up to 10.000 marks
from 10.000 to 50.0OO marks, from 50.000 to 200.000 marks, from 200.000 to 1
million marks, from 1 million to 10 million marks and above 10 million marks).
In this several obligations of the same debtor count as one.
(2) These weekly publications must
further state how many banknotes were destroyed in accordance with par. 14 and
how many banknotes were newly issued.
The audit office of the German
Reich supervises the whole management of the Reichsbank and submits quarterly
reports to the Reich’s government. These reports are also to be published in
the "Deutschen Reichsanzeiger"
and the "Preussischen Staatsanzeiger".
of Finance can pass the regulations and the general administrative rules for
the realization of this Act. He can also give supplementary general
instructions when he considers them necessary for the achievement of the
purpose of this Act.
This Act comes into force on ..................
The Government of the Reich is
hereby empowered to issue Reich treasury notes in denominations of 5,10,20,50
and 100 marks.
Reich treasury notes shall be produced by the Debts Administration of the
II. DRAFT OF A LAW ON REICH TREASURY NOTES
Debts Administration of the Reich has to note on the Reich treasury notes the
date of their handing over to the Chief Pay Office of the Reich.
shall replace notes that have been damaged or become useless and charge these
to the Reich when the submitted piece is part of a genuine Reich treasury note
and consists of more than half of such a note. In other cases, the Reich Debts
Administration shall replace notes at its dutiful discretion.
Reich Chief Pay Office shall cancel the Reich treasury notes flowing back to it
and return them to the Reich Debts Administration for destruction.
officially approved German Stock Exchanges shall daily determine and publish a
rate in Reich marks for the Reich treasury notes.
Until a free gold market has been established
in Germany, the rate shall be fixed by conversion of the London gold rate on
the basis of the average rate of Reich treasury notes for settlement in London.
If for more than two days the
average rate quoted stands below 95% of the nominal value, then new Reich
treasury notes may not be produced by the Reich Debts Administration or
circulated by the Reich Chief Pay Office, until the price quoted reaches at least
(l) The Reich Gazette and the
State Gazette shall publish daily statements on the Reich treasury notes. These
statements shall report, separate by denominations:
total amount of Reich treasury notes,
stock of Reich treasury notes at the Reich Chief Pay Office,
resulting number of Reich treasury notes circulating,
the incomings and outgoings of Reich treasury
notes at the Reich Debts Administration and the Reich Chief Fay Office.
(2)The Audit Office of the German
Reich shall control the accuracy of the statements and vouch for then in the
There is no legal obligation to
accept Reich treasury notes in payments which are to be made in currency, neither
at their face value nor at any other value.
(l) Compulsory acceptance for
these notes applies only to the pay offices of
1. the Reich,
2. the German
3. the municipalities
and municipal federations,
4. the social
5. the German Reich
6. the German Reich
(2) The compulsory acceptance does
not apply to deposits in postal cheques and savings accounts and in general
bank transactions, especially not to payments made to pay offices mentioned in
section 1 which only servo the passing on or the bank-like administration of
the amounts paid in.
The pay offices named in par. 7
must accept the Reich treasury notes at their face value at all times.
(1) If the average rate quoted at
a Stock Exchange stands below 95% of the nominal value for more than 6 days
then the Reich Minister of Finance shall decree the payment of certain or of
all taxes in parts or wholly in Reich treasury notes.
(2)When any payee fails to comply
with these obligations then he must pay a surcharge of 1%.
If a debt payment is offered in
Reich treasury notes then the debt relationship ends with their acceptance.
Par. 149 of the Penal Code of the
German Reich applies to Reich treasury notes.
The Reich Minister of Finance
shall adopt measures to facilitate - particularly through establishing exchange
centers - the exchange of Reich treasury notes paid in at banks, between the
Reich Chief Pay Office, the Reichsbank, and the banks, savings banks, and other
The Reich Minister of Finance can
pass the regulations and general administrative rules for the realization of
this Act. He can also give supplementary general instructions when he considers
them necessary for the achievement of the purpose of this Act.
Par. 5:This Act comes into force on ...............
(1) Taxes of the Reich, the German
States, municipalities and municipal associations as well as custom duties can
be paid by the debtor by means of the surrender of debt certificates, interest
coupons of debt certificates, treasury certificates, treasury bills (debt
titles) of the creditor of these dues, provided they are due or due within 30
III. DRAFT OF A LAW TO FACILITATE
TAX PAYMENTS WITH DEBT CERTIFICATES AND LEDGER
(2) For the same purpose the tax
debtor may assign ledger claims he has against the tax creditor, provided they
are due or due within 30 days.
(1) The debtor may make payment0
towards taxes due in the future. Such payments establish tax assets.
(2) Tax assets may be established at
all pay offices to which dues have to be paid.
(3) Tax assets are established:
handing in due or not yet due debt titles which oblige the tax creditor,
The debt titles and ledger claims
are to be credited at their nominal value or at their reimbursement amount if
this is higher than the nominal value.
takes place on the 30th day before the due date. For lottery loans
the crediting day is determined by the Reich government according to the laws
by assigning due or not yet due ledger claims
which the tax debtor has against the tax creditor.
comes into effect upon assignment by the debtor or when the legally determined
tax claim falls due.
(1) Tax assets pay interest from
the date the debt titles and ledger claims fall due. The interest is credited
to the tax assets.
(2) The conditions of interest
payment are determined by the Reich government.
The tax debtors are assured of the
gold value of their tax assets. The gold value is determined in accordance with
par. 2 of the regulation to carry into effect the Act on stable value mortgages
assets can be inherited or transferred, wholly or in parts.
assets serve only for clearing purposes and cannot be reclaimed.
assets are freed of taxes of the Reich, the German States, municipalities and
municipal associations. This does also apply in favor of those who acquire tax
tax assets are transferred to an heir or other beneficiary neither death nor
gift duties become due.
(1) Against death duties even not yet
due tax assets of the deceased or
(2) of the tax debtor against the Reich,
may be cleared. This compensation takes place at the nominal value or at the
repayment amount (par. 3) to which are to be added the interest accumulating up
to the due date. From the total amount thus determined, an intermediate
interest is to be deducted. This intermediate interest must not exceed the
lowest interest rate applying to the loans of the Reich. Details are determined
by the Reich government.
(3) The tax debtor can pay the death
duty also by the surrender of not yet due debt certificates of the Reich or by
the assignment of not yet due ledger claims against the Reich. Clearing takes
place in accordance with section 1, sentences 2-4.
(1) Taxes overdue, when this Act comes
into force, by more than 3 months, can be paid by the debtor within 6 months
after this law comes into force, by the surrender of due or not yet due debt
titles or through the assignment of due or not yet due ledger claims at their
nominal value. Par. 9, Section 1, sentences 2-4 apply correspondingly.
(2) This does not interfere with the
compulsory collection of due taxes.
For tax assets those conditions on
interest, due dates, nominal value and repayment amounts apply which were valid
on the day of the surrender of the debt titles or the assignment of the ledger
claims. A subsequent change of these conditions does not affect the tax assets.
Cleared debt titles and ledger
claims are to be taken into account for the planned amortization payments of
the loan debtor.
titles are to be marked when they are surrendered.
the clearing the debt titles are to be destroyed and the ledger account claims
are to be cancelled.
Not subject to the stock exchange turnover tax are:
home or abroad contracted purchases of debt titles or ledger claims (par. 1)
which are used in accordance with paragraphs 1, 2, 9 or 10 of this Act.
The Reich Minister of Finance can
pass the regulations and general administrative rules for the realization of
this Act. He can also give supplementary general instructions when he considers
them necessary for the achievement of the purpose of this Act.
This Act comes into force on
use of these debt titles or ledger claims according to paragraphs 1, 2, 9 or 10
of this Act.
banks are enterprises whose object is to clear claims and debts.
IV. DRAFT OF A LAW ON CLEARING BANKS
may only acquire or grant credit on good commercial bills and good other claims
arising out of sales of goods and services. The due date of the bills and
claims must not exceed 4 months. Their obligors must be known as solvent.
may not undertake any other classes of banking operations.
Clearing banks must be entered in the Company
or Cooperative Register.
banks are entitled to accept clearing cheques drawn on them, by means of a note
on these cheques.
this acceptance the clearing banks bind themselves to credit the bearer of a
clearing cheque on a clearing account. They are not
obliged to pay cash.
clearing bank can
free itself from the obligation to clear by satisfying the claims of the
creditor with the surrender of Reich banknotes, Reich treasury notes or coins.
cheques, within the meaning of this Act, shall be payable to the bearer and
shall carry on the front the notification: "For clearing only". They
may only be made out in denominations of 1, 2, 5, lo, 20 and 50 marks.
Moreover, they must be in accordance with the requirements of par. 1 of the
Cheque Act of 11.3.1908.
cheques must be printed, apart from the signatures of the bank drawn, the
drawer and the date of issue. The issue date may be printed. The signatures
maybe mechanically duplicated.
Clearing banks may only issue
printed forms for clearing cheques which carry already the bank’s notification
The clearing banks are obliged to
accept at full nominal value and at any time all clearing cheques which already
carry their acceptance note.
banks may only issue printed forms for clearing cheques and acquire, or lend
on, bills or other claims (par. 1, sec, 2), if in the course of the preceding
calendar month one fifth of the bills and other claims, outstanding at the
beginning of that month, have been repaid (reflux).
of an existing indebtedness, in whatever form, do not count as repayments.
the extent. that the credits granted by a clearing bank are not repaid by the
handing over of clearing cheques of this bank, but by other means, more
particularly by transfers or delivery of Reich banknotes, Reich treasury notes,
or coins, these means of payment are to be used, or to be kept ready, for the
purchase of clearing cheques of that bank.
clearing bank can demand a premium from its debtors to the extent that they do
not repay their debt by the surrender of clearing cheques of this bank. This
surcharge may not exceed 1% of the amount repaid in this way.
There is no time limit for
presenting a clearing cheque to the drawee clearing
claim against the clearing bank arising out of its acceptance and against the
drawer of the clearing cheque falls under the statute
of limitations after 3 years. This time limit begins at the end of the year in
which the clearing cheque was drawn.
clearing banks have to point, out the running out of the time limit up to the
first of November of every year - by announcements in the papers used for the
publications of the clearing banks.
clearing banks shall be attached to an audit centre determined by the Reich
Minister for Economic Affairs.
audit centre is entitled to examine the business papers, books and other
documents of the clearing banks.
By the 10th of each month, the
clearing banks must submit to the audit centre statements on the development of
the business during the preceding month. This report must set out:
aggregate amount of the bills and claims acquired and those lent on, each
Par. 795 of the Civil Code does
not apply to clearing cheques in the meaning of this Act.
The Reich Minister for Economic
Affairs can pass the regulations and general administrative rules for the
realization of this Act. He may also give supplementary general instructions
when he considers them necessary for the achievement of the purpose of this
This Act comes into force on ........
total amount of the issued and not yet returned printed clearing cheque forms,
amount involved in the bills and other claims paid off during the month reported
aggregate amount of the printed forms issued as clearing cheques during the
month under review,
amount of the means of payment held ready pursuant to par. 8, sec. l,
the prolongations of existing debt obligations.
The present situation is
characterized by a vicious circle. The further the shrinkage of the economy
proceeds, the lower is the income of the States. The more the tax burdens are
increased, the more shrinks the capacity of the economy. Moreover, the
requirements of the treasury rise with the number of the unemployed. Already
today some of the largest German municipalities have difficulties in finding
the means required to pay their public servants and social services. The day
cannot be far away when they are altogether unable to raise these funds. When
this day occurs, civil unrest will not be far away, either and the emergency
will enforce the issue of state paper money. Thus it is to be feared that the
development will inevitably lead to inflation.
All previous measures to fight the
economic crisis were without success. In essence they amounted only to an adaptation
to a continuously progressing deflation. This does not suffice. Instead, the
dynamics of the situation must be actively fought and a full strength effort must
be made to break the vicious circle.
BUT CAN WE DO ANYTHING? Isn't the
present situation merely the necessary consequence of the unhappy ending of the
war? Isn't the steadily increasing unemployment and
the worsening shrinkage of the economy, in short, the more and more spreading
dissolution of the whole German economy, lastly due to the Reparations and the
other war debts? Isn't the accumulation of gold in a few centers of the world
the cause of this downfall? Briefly, haven't we got a WORLD CRISIS which could
only be effectively fought through uniform measures of all countries involved
and not through the single-handed efforts of any country?
No informed person will deny the
connections and interrelationships of international life. However, even the
strongest ties with other nations do not release us from our obligation to do
OURSELVES everything that can lead to an improvement in the situation. Once
before, the belief that external help would be required has had the most
disastrous consequences for the German people. During the inflation it was also
assumed that its cause was in the international situation. The "Hole in
the West", the uncertainty on the total of the reparations, were held
responsible for the inflation. One considered it impossible to establish a
stable currency before an international conference had clarified the general
situation. Then as well as now one believed to have to wait for external help.
This hope was deceptive. When the emergency had risen to extreme heights, when
unrest and uprisings had already broken out in various parts of Germany, then,
during the last hour, we succeeded in stopping the progressive depreciation of
the mark and carrying out its stabilization. All this happened, and nobody in
the world denies this, exclusively due to the own efforts of the German
people No international conference helped. The invitations to the councils of
experts were sent to the participating governments only after the stabilization
had already been achieved.
There is no doubt that the present
situation is not the same as it was then but the similarity is greater than
most people seem to assume. In any case, the experiences of this period supply
an impressive example for the present.
Furthermore, we cannot wait any
longer. The complete breakdown does already threatens The
settlement of international relations is achieved only slowly. THUS WE HAVE NO
OTHER CHOICE, WE CANNOT STARVE TO DEATH, WE MUST ACT.
Whilst the exigency is great and
the task is urgent, it must be clearly realized "that under no
circumstances must any means be used which brings the possibility of inflation.
On this there is full agreement in the whole nation. The horrors of inflation
are still in the memory of all. Moreover, it never happened that a sick economy
was cured by inflation. Every means leading to inflation must, therefore, be
But the task is not only to avoid
any means which might bring the danger of inflation with it. THE EXISTING
CONDITION CARRIES ALREADY AN INHERENT DANGER OF INFLATION. It has already been
stated that the gap between the money requirements of the government and the
possibilities of raising its revenues is steadily increasing. Thus one has to
seriously reckon with the danger that this tension will, when violence occurs,
lead to inflationary measures. Thus the task is not only to avoid inflation in
FUTURE measures but, much more so, to abolish the DANGER OF INFLATION
THE GREAT TRADITION of the German,
especially the Prussian pre-war financial system shows the way out.
If one compares the financial
constitution of the German States in the 19th century with the present one, an
essential difference shows up. UP TO THE YEAR 1909 THERE WAS IN GERMANY NO
COMPULSORY ACCEPTANCE (LEGAL TENDER) for banknotes and the treasury notes
issued by the State. Only in this year was enforced circulation introduced.
THUS UP TO THE YEAR 1909 THERE WAS NO POSSIBILITY TO ENGAGE IN AN INFLATION. A
few years later inflation was a reality. This fact must be recognized as clearly
as possible. For this purpose the relevant legal clauses are confronted below:
Par. 2 of the Bank Act of
14.3.1875 (RGB1.S. 177) formed on the model of prior state regulations, stated:
"AN OBLIGATION TO ACCEPT BANKNOTES in
payments which legally are to be made in money DOES NOT EXIST and cannot be
established through state laws, not even for State Pay Offices."
Contrary to this, article 3 of the
Act of 1.6.1909 concerning changes in the Bank Act (RGB1. S.515) runs:
"The notes of the Reichsbank are legal
By a change of the Bank Act
compulsory acceptance at face value (legal tender) was introduced for
Reichsbank notes and from then on everybody was forced to accept Reichsbank
notes in payment at their nominal value regardless of how much their real value
had sunk under their nominal value. The Act of 1.6.1909 was therefore the legal
precondition for the inflation and THE FEW WORDS OF ARTICLE 3 HAVE MADE
POSSIBLE THE WHOLE INFLATION LOSSES OF THE GERMAN ECONOMY.
It is highly remarkable how already
the old Prussian "Regulation on the Acceptance of Treasury Notes in Payment
until Redemption Is Restored” of OCTOBER 23rd., 1807
judged such a measure. In this it says literally:
"We, Frederic William, by God’s grace
King of Prussia, Margrave of Brandenburg etc., hereby declare and proclaim:
Fundamentally, one has to start
from the fact that an inflation without legal tender
is never possible. On this there was always full agreement in the science of
finance. Only in modern times has this fundamental principle, apparently,
become forgotten. Which are the presently applicable legal clauses on this
decisive question? The Bank Act of 30/8/1924 (RGBl.
II, S. 235), passed within the framework of the laws of the Dawes Plan, agrees
almost word for word with the law of 1/6/1909:
When on the first of June of this year we left
the acceptance of the treasury notes to the free will of payees, we could not
help noticing that thereby this paper money would lose still more in exchange
against cash silver currency than it had already lost due to the restriction of
its redemption in silver. But we saw and see this as a minor evil COMPARED WITH
THE INCENTIVE TO DISHONESTY ARISING OUT OF THE POSSIBILITY TO PUSH PAYMENT ON A
CREDITOR IN PAPER MONEY WITH AN ENFORCED PAR VALUE, a paper which loses against
silver seeing its redemption has ceased."
This regulation was signed by the Baron von Stein.
Its par. 3, section 7 runs:
"The notes of the Reichsbank are, apart
from Reich gold coins, the only unlimited legal means of payment in
In the same way it is expressed in
par. 5 of the Coinage Act of 30/8/1924 (RGB1. II, S. 254):
"Exclusive legal means of payment are
from now on:
gold coins listed in paragraphs 2-4 and
LIMITS, THE NOTES ISSUED BY THE REICHSBANK AND EXPRESSED IN REICH MARKS."
The present ruling is thus exactly
copied from that of the year 1909 which made the inflation possible.
Thus, fundamentally, we have to
return in this question to the Bank Act of 14/3/1875 which was based on
experience covering more than 100 years. Correspondingly, the present Draft of
a Law on Stable Value Reckoning and Relieving the Reichsbank restores in
chapter I, par. 4, the old version of the Bank Act of 14/3/1875, par. 2. Thus
the enforced circulation (legal tender) for Reichsbank notes shall in future be
repealed and nobody shall any longer be forced to accept a Reichsbank note at
another than its true value.
The provisions of the current Bank
Act - par. 3, section 2 - and of the Coinage Act - par. 5 - which oppose the
old Bank Act are therefore to be repealed.
But this is not yet enough.
Moreover, to avoid inflation and restore just relationships, the principle of
stable value reckoning is to be established quite generally. A single means of
payment, when badly administered, may lose in value. But the price of goods,
the value of wages and services must no longer be interfered with by such
events in the future. NOBODY, IN THE FUTURE, SHOULD BE DEFRAUDED BY A
FLUCTUATION IN THE VALUE OF MEANS OF PAYMENT.
For this it is obvious that a
truly stable value reckoning is quite impossible as long as legal tender
exists. For by precisely this compulsion the development of that free market
rate is prevented which alone makes it possible to determine values. This does
not only apply in case of a depreciation of means of payment (inflation) but in
the same way in case the value of money rises (deflation). The injustice
involved is in both cases the same. In an inflation it
harms the creditors, in a deflation the debtors. Consequently, par. 1 of the
first Draft establishes the GENERAL PRINCIPLE THAT IN ALL TRANSACTIONS THERE
MUST BE STABLE VALUE RECKONING.
WHICH STANDARD OF VALUE should be
used? When towards the end of the inflation the value of marks was fluctuating
and depreciating so wildly that it could no longer be used as s standard of
value, the economy attempted to help itself and used, according to particular
circumstances, the price of rye or wheat, of sugar, of coal, of gas and of
other goods, as a basis for its reckoning. Compared with the continuously
falling mark these prices were stable - but compared with gold even they
There exists a lively controversy
at present on the question of the standard of value. DECISIVE for determining
our choice must be ITS USEFULNESS. Thus that particular commodity should be
used as a basis for reckoning which according to experience is subject to the
LEAST FLUCTUATIONS. THIS IS, for our time, without a doubt, GOLD. Statistics
and practical experience demonstrate that in relation to all other commodities
the fluctuations in the price of gold were by far the least during the last 100
years and they point out, on the other hand, what considerable fluctuations
took place, even in the last few years, e.g. in the prices of sugar and rye. It
is self-evident that the price even of the most price sensitive commodity is
still a better standard of value than a paper money with legal tender. After
mature evaluation of all circumstances we find that for the time being and for
the foreseeable future gold, among all commodities, is
the most suitable one for standard of value measurements.
Correspondingly, the Coinage
Act has determined the value of the Reich mark according to the value of
gold, in agreement with the legislation of most other countries. It will be
wise to adhere to this in principle. (But it should be left to the discretion
of the economy to make use, from case to case, of other standards of value than
gold, e.g. rye, coal or sugar, in its accounting.) Thus in
draft No. I the REICH MARK, in agreement with the former condition, has been defined AS 1/2790 kg OF FINE GOLD.
A free gold market in Germany
would be desirable and this will have to be one of the fundamental aims. But
until this is achieved, the reference to the London gold price, in agreement
with current practice, would offer the greatest assurance for stable value
It is self-evident that for the
purpose of stable value reckoning gold coins need not actually circulate
because in stable value reckoning the GOLD PRICE is merely used AS A MEASURING
With the repeal of legal tender (forced
acceptance) the unfortunate DOUBLE DEFINITION would be simultaneously abolished
which presently exits for the concept of the Reich mark. On the one hand,
through the Coinage Act, the Reich mark is defined as a certain quantity of fine
gold. On the other hand, it corresponds to the fraction of the value of a Reich
mark note, e.g. to a twentieth of the value of a banknote of 20 marks. Both
definitions are tied together merely by the institution of a forced (legal
tender) currency. But there can be no doubt - and experience has shown us very
definitely, that the value of banknotes and of gold can be very different from
each other. Thus the legal definition of the Reich mark according to the Coinage
Act shall be retained, that is, the value of the Reich mark is determined by
gold. But the currently side by side existing paper currency will be repealed.
From this point of view there are
no objections at all against the various GOLD AND OTHER VALUE PRESERVING
CLAUSES repeatedly used in the economy. Such objections arise only under legal
tender for banknotes. When ALL accounting of economic transactions is on a
STABLE VALUE BASIS, then contracts with gold clauses are
permitted on principle and at the same time superfluous as EVERY legal
transaction is to take place on a stable value basis, anyhow.
In this context there are two
remarkable historical precedents. Already FREDERIC THE GREAT stated in the
regulations on the Royal Giro and Loan Bank of
Berlin, on June 17th. 1765, in article 1:
"All accounts of this bank are to be
kept in pounds, each containing 30 Groschen. The
permanent content of this bank pound shall contain 25 % of the value of our
Frederic gold coins, which are coined out at 21 carat and 9 grains and of which
35 pieces amount to one "Marck" (appr. ½ lb.). Thus 4 pounds banco
will at all times amount to one Frederic gold
All business transactions of the
Royal Giro and Loan Bank at Berlin was to take place in pounds, i.e. in a reckoning
unit whose value was determined by gold but
not in actual coins, for coins in
pound denominations did indeed not exist in Prussia!
The second example was set by the
IMPERIAL AUSTRIAN PATENT of 1.6.1816:
"From now on and never again shall there
be a new issue of paper money with forced value and forced circulation or any
increase in the currently circulating one."
LEGAL TENDER FOR BANKNOTES IS TO
BE REPEALED. THERE SHALL BE STABLE VALUE RECKONING AND AS RECKONING UNIT IS TO
BE USED THE REICH MARK ACCORDING TO THE PROVISIONS OF THE COINAGE ACT.
This proposed settlement
establishes clarity regarding the currency and makes in future any INFLATION
ONCE AND FOR ALL IMPOSSIBLE in the most fundamental way. It corresponds to the
great traditions of the German financial history and follows the legislation of
Frederic the Great.
THE FINANCING OF
THE PUBLIC AND THE PRIVATE SECTOR OF THE ECONOMY MUST BE SEPARATED AGAIN.
The second source of danger in the
present situation is the mingling up of public and private financing.
Let us first look at the old Bank
Act of 14.3.1875. There, in par. 12, the task of the Reichsbank was described
the money circulation in the whole area of the Reich, to facilitate clearing
According to this the Reichsbank
was responsible FOR FINANCING PUBLIC EXPENDITURES AS WELL AS THE PRIVATE
ECONOMY. Correspondingly, par. 13 stated:
to see to it that all available
capital is utilized."
"The Reichsbank is authorized to engage
in the following activities:
According to this the Reichsbank
was free to acquire whatever bills it thought to be suitable, without regard to
their being commercial or financial bills, if only the due date is NO LONGER
THAN 3 MONTHS AWAY.
discount, purchase or sell bills of exchange DUE IN AT MOST 3 MONTHS, which
oblige as a rule 3 but at least 2 persons known to be solvent, moreover, debt
certificates of the Reich, a German State, or an internal municipal corporation,
provided they are due at their nominal value IN 3 MONTHS AT THE LATEST."
In the same way the Reichsbank was
authorized to acquire debt certificates of public authorities or to grant
credit on them. Decisive was merely that the bills of exchange and the debt
certificates were to be redeemed at their face value WITHIN 3 MONTHS. This
FUNDAMENTAL IDEA cannot be overstressed. It establishes the principle of REFLUX
which forms a more essential foundation of the banknote system than the gold
In this way the Reichsbank
fulfills its task to issue banknotes against claims. In other words, it subdivides
bills or certificates submitted to it, due later but in at
most 3 months, and turns them into immediately due small pieces designed
for daily circulation. When after 3 months at the latest the purchased bill or
the certificate advanced upon became due, then it had to be redeemed in the
banknotes issued for this purpose. The Reichsbank thus received its banknotes
back, returned the bills or certificates and thereby the particular business
was concluded. In case the bill debtor paid in gold coins instead of in
banknotes, then the Reichsbank could use these to buy up its banknotes. Due to
its redemption obligation it was even forced to undertake this repurchase.
Thus the banknote circulation
rested on the principle that within 3 months at most all issued notes had to
flow back to the Reichsbank and this basic idea was good. When this fundamental
requirement was fulfilled, no compulsory acceptance was required. The value of
the notes consisted precisely in the fact that they had necessarily to return
to the Reichsbank which was obliged to accept all notes issued by it at any
time, at their nominal value, in all payments (par. 4, sect. 1 of the old Bank Act).
HOW IS THE SITUATION TODAY? The
Bank Act of 30/6/1924 at first, in par. 1, literally repeats the number of
tasks of the Reichsbank: Thus today as well as before, it is the duty of the
Reichsbank to regulate the money circulation in the whole area of the Reich, to
facilitate clearing and to see to the utilization of available capital. As for
the rest, the provisions of the current Bank Act differ essentially from the previous
ones. Thus the Reichsbank is NO LONGER permitted to acquire debt certificates
of public authorities, be they of the Reich, the German States or
municipalities. Also, the acceptability requirements for bills of exchange for
discount by the Reichsbank have been raised. The Reichsbank is now to discount
only GOOD COMMERCIAL BILLS. Thus par. 21 of the new Bank Act, as far as we are
here concerned with it, runs as follows:
"The Bank is authorized to conduct the following business:
THE PRINCIPLE OF REFLUX has thus
been preserved. Now, as well as before, the acquired bills should run for no
longer than 3 months. INSOFAR there are no objections against this rule. On the contrary. This law leaves nothing to be desired from
the viewpoint of the private economy - for the insistence that exclusively good
commercial bills are to be discounted, corresponds to the principle of reflux
and commercial bills, quite naturally, have this tendency still more so than
financial bills. ON THE OTHER HAND, THE PRESENT RULING IS INSUFFICIENT FROM THE
VIEWPOINT OF THE GOVERNMENT. The Reichsbank is expressly forbidden to acquire
claims against public authorities. The Reichsbank may grant them only an
operating credit of at most 100 million Reich marks - according to par. 25
sect. 2 of the Bank Act. Moreover, par. 25, sect. 6 expressly orders:
discount, purchase or sell bills of exchange running for at most 3 months,
which oblige three solvent debtors, likewise cheques, signed by three persons
known to be solvent. The requirement of the third signature can be ignored in
cases where there is another security or where in some other way the value of
the bill or cheque is guaranteed. But the total of
the thus discounted bills may not exceed 33% of the total of the discounted
bills. ALL BILLS DISCOUNTED BY THE BANK MUST BE GOOD COMMERCIAL BILLS."
"Otherwise, the Bank may neither
indirectly nor directly grant credits to the Reich, the German States, municipalities
(municipal associations) or foreign governments."
the Act of 8/7/1926 (RGB1. II, S. 355), the Reichsbank was permitted to discount treasury
bills of the Reich up to the maximum amount of 400 million Reich marks, to
purchase and sell them, provided only that apart from the Reich somebody else,
known to be solvent, guarantees them.
As soon as these limits are
reached, the Reich can get no further credit from the Reichsbank. This
provision becomes understandable if one remembers that immediately before the
passing of the new Bank Act the Inflation occurred, due to the granting of
credits to the Reich on the basis of the existing legal tender of the
Reichsbank notes. But the fact remains that for the Reich short term finance
from the Reichsbank has been extraordinarily limited. This is all the more
significant when one considers that the financial requirements of the Treasury
have been substantially increased, absolutely as well as in relation to the
productivity of the economy. While for 1913 the claims of the government
against the national product amounted only to 18^, they may presently amount to
between 40 and 45%. The financial needs of the State have more than doubled
while its financing opportunities have been reduced.
Everyone knows that the
Reichsbank, due to the increasing difficulties of the public purse, was forced
to discount and purchase - contrary to the provisions of the new Bank Act - the
debt certificates of the Reich, the German States and municipalities. Everyone
knows that the credits granted, indirectly or directly, in this way, do exceed
many times the limits set by the Bank Act. Altogether, the financial bills of
the public authorities discounted by the Reichsbank, amount to about 1.300
billion Reich marks. The banknotes issued
upon these financial bills are essentially a camouflaged State paper money. If
one also ponders that silver coins were issued for about 1.376 billion marks
then one finds that about 40-45% of the whole money circulation does no longer
rest on the principle of commercial bills but on the public sector of the
With this, truly, the fundamental
principle of the Bank Act has been violated, according to which only good
commercial bills of the private economy may serve as cover for the issue of
banknotes. Consequently, THE CURRENCY TODAY, regardless of all contrary
assurances, IS ALREADY UNDERMINED.
Even all this would not yet be
decisive. But it is essential that the financial bills of the public
authorities taken in this way, could not be repaid
within 3 months. The means of payment issued on the basis of these bills did,
therefore, not return to the Reichsbank within 3 months. Thus the fundamental
principle of reflux was disregarded. The issued notes were not used to repay
the short-term debts on the due date, to the Reichsbank. They remained in
circulation and thereby was created the precondition
for withholding great stocks of notes as HOARDED MONEY.
The difficulty does now consist in
the fact that to the same extent as the Reichsbank had to take over the
financing of public expenditures, the financing of the private economy became
impossible, for the Reichsbank saw itself compelled to restrict credit to the
private sector to the extent that it had to take in treasury bills. Thus the
emergency of the State pressed down with its full weight upon the private
economy and made the exchange of goods difficult to impossible. It is obvious
that thereby the shrinkage of the economy was further advanced and unemployment
Thus this aspect must be our focus
of attention. One could think of basically returning to the old Bank Act of
1875. However, there are some objections against this. For one, the new Bank
Act was passed because of international obligations and can only be changed
with the consent of the signatory powers. Although one can expect that changes
of the kind proposed in Chapter I concerning par. 3 of the Bank Act and par. 5
of the Coinage Act, can be achieved without considerable difficulties, this
does not apply to the question discussed here. One has rather to expect that
the signatory powers will want to preserve the well considered separation
between the public and the private sector of the economy. Moreover, there is NO
FUNDAMENTAL OBJECTION AGAINST SUCH A SEPARATION. The presently applicable
principle, according to which the Reichsbank has to serve the private economy
and should make available to the public purse only a limited operating credit,
could very well be accepted as a foundation. But one has to give the treasury
the financial opportunities which it requires for the fulfillment of its tasks.
IN SUMMING UP ONE CAN STATE:
THE FINANCING OF PUBLIC
EXPENDITURES MUST AGAIN BE SEPARATED FROM THE PRIVATE ECONOMY FOR THE PUBLIC
SECTOR OF THE ECONOMY AS WELL AS THE PRIVATE ONE, THE VIOLATED PRINCIPLE OF REFLUX
IS TO BE RESTORED. ALL ATTENTION SHOULD BE DIRECTED TOWARDS ENSURING THAT THE
ISSUED MEANS OF EXCHANGE DO ACTUALLY CIRCULATE, I.E. RETURN AS SOON AS POSSIBLE
TO THEIR PLACE OF ORIGIN.
1. WHAT IS THE PRESENT SITUATION
OF THE TREASURY?
THE LONG-TERM INDEBTEDNESS of the
Reich, the German States and municipalities, amounts - without the reparation
obligations - to 19.86 billion Reich marks, to which have to be added debts to
suppliers etc. Altogether, the long term indebtedness may amount to 23 billion
Reich marks. This is not excessively high, neither in relation to the German
national wealth nor compared with the long term debts of other countries. Thus
the Internal debt of France amounts to about 44 billion marks and that of Great
Britain, reckoned at gold parity, to about 130 billion marks.
THE SHORT TERM INDEBTEDNESS, apart
from 786 million Reich marks of foreign debts, amounts to 3.914 billion marks.
Up to 31.3.1933 it will, most likely, have grown to 6 billion Reich marks. One
has also to consider that a significant part of this short term debt is in
reality a long term indebtedness since it cannot be repaid in the near future.
It is also, in relation to the long term indebtedness, excessively high as by
31.3.1933 it will amount to about ¼ of the long term debt while, according to
recognized principles of financial policy, it should not amount to more than
THE BUDGET DEFICIT of the Reich,
the German States and municipalities, will, presumably, come in 1932/3 to about
3 billion Reich marks and if the deficit of 1931 is carried over, even to 4 billion
Reich marks. THE MONTHLY CASH DEFICIT of the Reich, the German States and
municipalities will have to be estimated at 200 million Reich marks at least, of
which about 150 million Reich marks fall on the Reich.
In all this one has to be aware
that the extraordinary size of the floating debt disturbs the whole money and
capital market. It leads to insecurity on the credit market and to increased
interest rates. Finally, it has a negative effect on the liquidity of the
banks. As long as extensive debts of the public purse are not consolidated, it
is impossible to raise new loans and arrive at a sound financial situation.
However, a consolidation cannot take place as long as the price of public loans
remains at 50% of their nominal value and even below and thus the effective
rate of interest has risen to 12-14%. Nobody will be inclined to entrust new
money to the State under these circumstances, especially since by the purchase
of old loan certificates he can achieve double the interest rate. It is
self-evident that this influences the whole market for long term funds
decisively. And yet, a rise in the price of loan certificates does not occur -
as there is no demand for them.
2. WHAT POSSIBILITIES EXIST FOR
Fundamentally, the State covers
its requirements by taxes. Aside from this, there is the possibility of long
term or short term loans. There is general agreement that at present an
increase of the tax rates is out of question. Even the introduction of new
taxes can no longer raise new revenues. On the contrary, during the progressive
shrinkage of the economy the returns from all taxes fall steadily. Even in
associate on with a severe further reduction of salaries the budget cannot be
balanced by tax increases.
To achieve a FOREIGN LOAN is
completely impossible, already for political reasons, seeing the uncertainty of
the present situation. An internal loan, likewise, does not promise success.
Nobody will subscribe to a new loan as long as the price of the old one is only
at 50%. Even promises of tax and similar advantages cannot help here. For the
same reason lottery bonds cannot be successfully launched at this time either.
The avenue of SHORT TERM CREDIT
from the Reichsbank has been expressly interdicted for the Reich by the Bank
Act. If one wants to improve the present situation then one must under all
circumstances firmly insist THAT AT LEAST IN FUTURE THIS PROHIBITION OF THE
BANK ACT IS OBEYED.
But even if one believed to be
able to ignore the provisions of the law on this matter, due to the present
emergency, the Reichsbank will become unable to provide the private economy
with the required means of payment to the same extent as it finances the public
purse. Thus, even if the Reichsbank, contrary to the provisions of the Bank
Act, were to continue to discount treasury bills of the Reich, the present
situation would not be improved but, instead, THE SHRINKAGE of the economy
WOULD BE SPEEDED UP.
Thus the Proposals of the Law
Drafts aim at the following:
allow the Reich to finance itself by the issue of treasury notes (Draft II)
to create a steady demand for government
securities by means of establishing a clearing opportunity for them, against
tax debts, thus raising their price and preparing the way for new loans (Draft
3. THE DRAFT OF A LAW ON TREASURY
The issue of treasury notes is
designed to satisfy the short term needs of the public purse.
In this fashion an avenue shall be
opened for the Reich which was closed for the Reichsbank by the new Bank Act.
We have here, also, the precedent of the old Act on Treasury Notes of 30.4.1874
(RGB1. 40) which, in turn, is formulated according to various previous models,
especially Prussian and Austrian ones. The Law Draft follows this law in
principle. The starting point is the par. 5 of the law of 30/4/1874 which ran:
notes will be accepted at all pay offices of the Reich and all federated States
ACCORDING TO THEIR FACE VALUE and will be exchanged by the Chief Pay Office of
the Reich for cash currency, upon demand.
FOR PRIVATE TRANSACTIONS THERE IS NO
COMPULSION (LEGAL TENDER) TO ACCEPT THEM."
The clause on redemption is out of
question for the present BUT THE OTHER TWO SENTENCES CONTAIN IN ESSENCE THE
WHOLE PRINCIPLE UPON WHICH THE CONCEPT OF TREASURY NOTES RESTED. The State must
recognize against itself the certificates it has issued. This is self-evident,
for every debtor has, naturally, to recognize his own debt. But beyond this
there is to be no compulsion at all regarding their acceptance. There is no
compulsory circulation and in private transactions - as before the war -nobody
in Germany is obliged to accept the treasury notes.
Thus their value does not rest upon
government fiat. It is more firmly established than upon legal tender, namely
upon the STEADY demand by the Reich and all public pay offices. Everyone is
entitled to pay his taxes and other dues in treasury notes and ALL PUBLIC PAY
OFFICES ARE OBLIGED TO ACCEPT THEM AT ANY TIME AT THEIR FULL NOMINAL VALUE,
REGARDLESS OF THE PRESENT MARKET VALUE OF THE TREASURY NOTES. Thus the
circulation of treasury notes rests, similar to that of sound banknotes, not
upon compulsory acceptance (legal tender) but upon the principle of reflux.
In both cases we have in essence
bridging finance. Basis for the issue of the treasury notes are the coming-up
tax revenues of the Reich. They, like the discounted bills of exchange, in the
issue of banknotes, form the cover. The treasury notes have thus a tax
foundation while the banknotes are based on the commercial bills. When the
taxes are paid, the treasury notes flow bock to the Reich in the same way as
the Reichsbank, on redemption of the commercial bills, gets again possession of
the banknotes it has issued. Thus in both cases the circle is closed and can
It is of extraordinary interest
that already the old Prussian "Further Regulation
on the Treasury Notes" of 5/3/1813, has among other things the following
to say on this question:
Par. 3: These Treasury Notes and Thaler
Tokens are to be considered as tax assignments which are realized through the
newly instituted property and income tax of the regulation of 19/01/1813, in
paragraphs 11-15. As soon as they have been returned in payment of these taxes,
they have to be destroyed..."
Par.8: ...As these Treasury Notes and Thaler
Tokens are acceptable at their nominal value for the property tax, they are an
assignment to compensate in the shortest possible way ..."
This regulation was signed by VON
NO UPPER LIMIT is required for the
issue of treasury notes. It would, indeed, be difficult to determine such a
limit. Presently, a sum of 1-1.5 billion Reich marks may be suitable. But
within a short time the situation may have changed and exactly when it would
become possible to reduce the floating debt through the issue of treasury notes
and thus to relieve the Reichsbank, whatever limit had been fixed, might prove
to be too small. Self evidently, the total amount of the issues must be
proportionate to the expected tax revenues of the treasury - so that all issued
treasury notes can always be evacuated from the general circulation by the
demand exerted by the treasury. The present yearly requirements of the treasury
amount to approximately 18-20 billion Reich marks, at least. Thus they exceed
many times the amount envisioned for the issue of treasury notes.
The most effective means to
determine the upper limit for the issue of State paper money of any particular
time is THE FREE MARKET RATE. IF THIS EXCHANGE RATE FALLS THEN TOO MUCH MONEY
HAS BEEN ISSUED AND FURTHER ISSUES MUST CEASE."
(Note by J.Z. on the previous paragraph;
Further issues not only "MUST" but
"WILL" case, IN THE INTEREST OF THE TREASURY! For Instance: A nominal
100 marks in treasury notes, issued today to purchase 95 marks worth of goods -
due to a 5% fall in the exchange rate - can already today or tomorrow be
returned in payment of 100 marks of taxes. This would thus lead to a revenue
loss of 5% of the discounted issue within 1 or 2 days only! No government is
willing to reduce the tax burden by that much and that fast. Back to Dr. Zander’s
For this reason the Draft
prescribes that treasury notes are to be quoted daily on all public exchanges.
It also prohibits the further issue of treasury notes in case the market rate
has fallen below 95% of the nominal value, even if only for a few days. In this
way the most effective control imaginably is exercised over the value of the
treasury notes. Should their market value indeed sink once to 95% or below
then, when further issues cease, a shortage must soon result which must bring
the market value back to parity. In this case everyone would attempt to acquire
treasury notes as he could use them at their face value for his tax payments -
with a profit margin for himself. Similar regulations existed before,
especially in Prussia and Saxonia. Then it was even
prescribed that certain taxes are always to be paid in state paper money -
under threat of a small penalty consisting in an additional small payment
required. Such an obligation has not been integrated in this draft as it can
safely be assumed that the market rate of the treasury notes will not fall
below their nominal value. But the Finance Minister of the Reich has been
authorized, by par. 9 of Draft II, to issue such a regulation.
To ensure strict adherence to the
essential provisions, an exact CONTROL BY THE SUPREME AUDITING OFFICE OF THE
GERMAN REICH has been provided. Daily balances are to be published in the
German Reich Bulletin and the Prussian State Bulletin and they are to be
certified by the auditing office.
WHAT ADVANTAGES DOES THE ISSUE OF
TREASURY NOTES OFFER, COMPARED WITH THE PRESENT SITUATION?
A perplexing and confusing condition
will be replaced by a clear separation between private money of the economy,
based on good commercial bills, and the paper money of the State. All existing
doubts are thereby removed. The Reichsbank will have to discount, again, in
exact accordance with the provisions of the Bank Act, those bills of exchange
which arise in the private economy and have to assure their punctual repayment
on the due dates. The State, for its part, will be freed of the undignified
situation in which it has to satisfy its short-term financial needs from the
Reichsbank in a roundabout and secret way. The care for its short-term finance
is left to the State itself and it will have to take full responsibility for
This solution brings also
considerable INTEREST SAVINGS for the State. The roundabout way of discounting
financial bills at the Reichsbank caused costs which, even considering the
profit-sharing of the Reich with the Reichsbank, amount every year to at least
50-100 million Reich marks. This amount is saved in the future. Moreover, the
Reichsbank will be freed from the task forced upon it to carry out the short
term financing of the treasury. It will thus be relieved and can dedicate
itself to the task given to it by the law, to finance the private economy. One can,
therefore, hope that the LIQUIDITY OF THE REICHSBANK will be raised in this
way. Finally, to the degree that the Reichsbank becomes completely freed from
the burden of public finance, the situation of the private economy will be
eased and at least this cause of the shrinkage of the economy will be
Here it must be added that the
existing Bank Act does not prohibit the issue of treasury notes. In the report
of the London Experts (Dawes Report) there was, indeed, such a clause but it
was not included in the Act. Moreover, the concern then was obviously only
about State paper money with legal tender, whose issue would, indeed, have
meant the greatest dangers of inflation. That a State paper money without legal
tender cannot bring about inflation has already been explained.
DRAFT OF A LAW TO FACILITATE TAX PAYMENTS WITH DEBT CERTIFICATES AND LEDGER
The third of the Drafts submitted
refers to the long term credit of the treasury. It intends to raise the market
rate of public loans and to create thereby the possibility to issue new loans.
The draft does thus also rest on
the self-evident principle that every debtor must recognize his own debt as a
means of payment against himself. The draft has taken very much care that the
cash situation of the public purse is not deteriorated thereby. The underlying
principle is, therefore, that only DUE tax debts can be cleared with DUE loan
claims. Every tax debtor having due claims out of a public loan against his tax
creditor, is therefore enabled to clear his debt against that of the treasury.
To the extent that both claims are due, a useless shuffling about of means of
exchange is thereby avoided. This does also apply when clearing is permitted
already 30 days before the due date for the government, on, its side, has to
provide for the money required about 1 month before its loan certificates or
interest coupons become due. In England the bills of the Exchequer can already
be given to the State in payment 6 months before they are due. Self evidently,
the clearing will take place regardless of the current market value of the
government securities that is AT THEIR NOMINAL VALUE. Thus every tax debtor
will try to acquire a due or almost due government security, as long as its
market value allows him a profit. Thereby, a DEMAND IS CREATED which is
suitable FOR RAISING THE MARKET RATE.
It is obvious that a clearing only
with the already due obligation of the Reich would not immediately suffice to
create a large enough demand to fully raise the market rate. Thus the draft has
gone beyond this. With regard to DEATH DUTIES, it permits clearing even with
loan certificate - which are NOT YET DUE. As the time of death is uncertain, it
is only fair to confine clearing in these cases not to the due dates. The resulting
loss in cash revenues for the public pay offices would be relatively small.
Death duties brought last year only about 80 million Reich marks, altogether.
If, furthermore, one considers that debtors of death duties have a legal claim
to an extraordinarily long payment period, then the clearing of not yet due
claims can be upheld in this case. The demand for State securities created in
this way will probably exceed the value of the yearly death duties many times.
If thus a demand of about 300 million Reich marks were created, this would mean
a DAILY TURNOVER OF ABOUT 1 MILLION MARKS in government securities.
Moreover, the draft provided for
the clearing of OVERDUE TAXES ALSO with not yet due government securities. As a
large part of the overdue taxes has anyhow to be written off, a part payment
could perhaps be achieved in this way.
Finally, the draft provides for a
CLEARING OF NOT YET DUE LOAN CERTIFICATES WITH NOT YET DUE TAXES. It offers the
possibility to hand in to a public pay office a debt certificate which is due
in the future or to assign to it ledger claims which later on, on the due date,
are to be cleared against the tax debt falling due in the future. For this
purpose the Draft Introduced the possibility to establish TAX ASSETS.
All these proposals hove in common
that CLEARING TAKES PLACE ALWAYS AT THE NOMINAL VALUE or, in case the repayment
amount is higher, then at this amount, without regard to the then existing
market rate of the cleared loan certificates. Thus, the lower the market rate
is, the greater will be the INTEREST FOR THE TAXPAYERS to acquire loan
certificates for clearing purposes. In this way a STEADY DEMAND FOR LOAN
CERTIFICATES is to be established which is all the greater the lower the price
of the securities has fallen. The situation is thus completely different from
support purchases of securities by the treasury. In the latter cases we have an
external measure whose permanence and success can never be predicted and which
has a lasting effect only in rare cases. On the other hand, the DEMAND created
by the Draft ARISES OUT OF THE ECONOMY ITSELF. The demand is steady and lasting
and it does not cost the government any additional means.
THE GOLD VALUE of all down
payments on tax assets should be ASSURED to the taxpayer. Moreover, the owner
of the certificates should be protected against all subsequent reductions of
interest, consolidations and conversions of the certificates submitted for
It is self-evident that each tax
can only be cleared with claims against this tax creditor. Each municipality
and each State would therefore only be obliged to accept ITS OWN LOAN
CERTIFICATES in clearing.
Through the above measures the
Reich is enabled to undertake its short term FINANCING itself, independent from
the Reichsbank. At the same time THE REICHSBANK IS TO BE RELIEVED and the
floating debt of the Reich is to be reduced. The FACILITATION OF TAX PAYMENTS
through clearing shall increase THE DEMAND for PUBLIC SECURITIES and will
thereby raise their market rate. When this is successful, the road is open for
the ISSUE OF NEW LOANS AND THEREBY FOR A CONSOLIDATION OF THE FLOATING DEBT.
Moreover, through the increase in the price of securities, the EFFECTIVE
INTEREST RATE BECOMES REDUCED and one can then hope to achieve in this way a
BEARABLE INTEREST RATE FOR LONGTERM CREDIT IN GENERAL.
1. THE REICHSBANK
Primarily, the Bank Act has to be
restored. This has already been sufficiently discussed in the above. The
Reichsbank is to be freed of the burden of public finance and to be restored to
its proper task, that of financing the private economy. The Reichsbank may
never again, in future, acquire or discount claims due in more than three
months. Prolongations must be excluded. In other words, the principle of REFLUX
is to be re-established.
For this purpose there appears to
be no other way out that to DRAW A FUNDAMENTAL LINE OF SEPARATION BETWEEN THE
PRESENT AND THE FUTURE SITUATION. There must be a distinction between OLD
BUSINESS and NEW BUSINESS as happened after the inflation. The former is sick
and must be wound up, slowly. The latter should be free to develop in
accordance with the Bank Act, without being burdened by former events. Self
evidently, there is no thought here of a juridical separation of the property
involved. Here there are only measures within the united enterprise of the
For the liquidation of the OLD
BUSINESS the following rules should apply:
To avoid an exchange rate loss,
the currently circulating banknotes receive for a certain time, similar to the
treasury notes, a TAX FOUNDATION. This ensures that up to this fixed date they are
to be accepted by all public pay offices at their full nominal value, in
payment of all taxes. Also and up to this time, they can be paid in to
establish TAX ASSETS.
After this period the public pay
offices would have to accept these notes only at their market rate. In this
situation it appears advisable not to extend this period for too long as the intention
is to withdraw in this way even the HOARDED NOTES.
For the NEW BUSINESS the present
rules of the Bank Act apply. In this respect nothing will be changed.
The Reichsbank should in the
future, as well, discount only bills of the private economy and at that only good commercial bills. They should mature in at
most three months. The banknotes issued upon these bills must thus flow back
within this short period.
New is only the provision
according to which the issue of banknotes must cease whenever during the
preceding month one quarter of the credits granted under this Act have not been
repaid. By this clause reflux should be safeguarded more so than by the former
Furthermore, the present Bank Act
is supplemented by an extension of the provisions on PUBLICITY FOR THE
REICHSBANK’S ACTIONS and the control of its business conduct by the Auditor
General. Even for this the Bank Act of 1875 sets a precedent.
All banknotes issued after this
Act comes into force, shall be distinguishable from those circulating so far,
in order to let the liquidation of the old business become obvious to the
In this way there can be hope to
restore to the Reichsbank freedom of action by a return to the Bank Act.
2. CLEARING BANKS
With the above proposal alone,
unemployment cannot be effectively fought. To restore the disturbed private
economy there must be established, PARALLEL to the central note issuing bank,
institutions which make free exchange in the economy possible. The
centralization of the whole economic life in a central bank is not completely
realizable, as has been demonstrated, and it is, from a certain limit on,
associate with considerable dangers. The crisis of 1931 led right in the
beginning to the breakdown of the complete system of giro
payments (non cash transactions) and has put the credit institutes out of
Moreover, the central bank of
every country is subject to strong influences from foreign countries. Everyone
knows that the withdrawal of gold from the central note issuing bank exerts a
political pressure on the economy of even the most powerful States. This
applies all the more to Germany where the gold stocks of the Reichsbank have
melted away to an extreme extent.
There can be no doubt that each
disturbance of the exchange of goods is to be avoided as far as possible. This
has nothing to do with the question whether the economy is striving for
autarchy or not. For in no case should the exchanges of goods WITHIN a country
be rendered impossible because there were disturbances in the relations with
Thus the economy should be
permitted to establish CLEARING BANKS AS A SELF-HELP MEASURE WITHOUT ANY
SUBSIDIES and without any government restrictions. Their task should be to
bring into contact the available raw materials and products with the existing
labor power and needs WITHOUT REQUIRING CASH CAPITAL and thus to contribute
significantly to the ABOLITION OF UNEMPLOYMENT.
The clearing banks correspond in
their structure essentially to the note issuing banks. The clearing banks,
also, should discount sound commercial bills and, similar to the note issuing
banks, split them into typified means for circulation. The validity of the
claims purchased by them or accepted by them as the basis for loans, is
likewise limited. Clearing banks rest also on the principle of reflux. But,
contrary to the note issuing banks, they should be under NO OBLIGATION AT ALL
TO PAY IN CASH OR TO REDEEM. All their business transactions shall only take
place in the form of CLEARING. In this the self-evident principle would apply
that each debtor has to recognize his debt - as far as it is due - as a means
of payment against himself.
The subdividing of the purchased
bills or those held as security, takes place through the issue of clearing cheques
drawn by the customers against the clearing bank. These cheques shall only be
issued in typified small denominations as, essentially,
they should serve to pay wages.
The provisions of the Cheque Act
are in so far supplemented as these typified clearing cheques may be accepted
by the clearing banks. The clearing banks, moreover, may issue only those forms
for typified clearing cheques which are already marked with their endorsement.
Through this acceptance a direct claim is established of the bearer of the cheque against the clearing bank.
Moreover, an extension of the
statute of limitations period to 3 years has been provided and the clearing
banks are instructed to point out, in time and publicly, when this period
Contrary to the so far known clearing
cheques, the clearing principle has in this instance been, indeed, radically
and consistently applied. Thus the bearer cannot insist on cash from the
clearing bank - even after the clearing cheque has
been credited to him. The cheque establishes only a
claim to be credited with it.
HOW DOES BUSINESS WITH THE
CLEARING BANK PROCEED IN DETAIL? The customer gives the bank a commercial bill
for goods sold by him, either for discounting or as security for a loan. In
return, he receives from the bank forms of typified clearing cheques. These
forms ore printed. They express certain round denominations and are already
endorsed by the bank. The customer adds his own signature to these forms and
uses them for wage payments - and puts them in this way into circulation.
When the bill discounted by the
clearing bank becomes finally due, the drawee can fulfill his obligation
towards the bank by handing in clearing cheques of this bank - for the bank has
to accept the clearing cheques endorsed by it at any time and at their nominal
value. When the bill debtor (drawee) fulfills his obligation
in this way, i.e. through delivering clearing cheques, then these flow, AS
HAPPENS WITH THE BANKNOTES OF THE REICHSBANK, back to the bank by the due date
of the bill.
If the drawee does not pay in
clearing cheques but instead in Reichsbank notes or Treasury Notes - which he
is, naturally, free to do - then thereby the clearing bank receives the cash
necessary to purchase the outstanding clearing cheques issued for the redeemed bill,
and thereby it does redeem them in cash.
As the clearing banks are not to
conduct any other classes of the banking business, there is a provision in
Draft IV, par. 8, obliging the clearing banks to use these cash receipts for
the purchase of their clearing cheques or at least to keep them in readiness
for this purpose. In any case, therefore, the circulation is closed, similar to
that of the Reichsbank.
HOW DOES THE WAGE EARNER USE THE
CLEARING CHEQUES? He will pay with them in all those shops which do business
with the clearing bank and thus need clearing cheques to fulfill their
obligation towards the Bank. In this way EXCHANGE COMMUNITIES will develop
which mutually cancel their claims and debts through the clearing bank.
Self evidently, the Reichsbank's banknotes will not be replaced in any way by
this. It is furthermore self evident that these clearing cheques have no
enforced value or compulsory acceptance (legal tender). Only the clearing banks
themselves are obliged to accept their endorsed clearing cheques at any time
and at their full face value without regard to their exchange rate.
Beyond this, the bank remains free
to conclude agreements with its customers, within the framework of their general
business conditions, to assure that its customers will also accept the endorsed
cheques of the bank in payment up to the amount of their remaining debt with
the clearing bank.
The exchange system created in
this way is - contrary to the previous systems - safe against runs. The
clearing cheque does not establish a claim for a cash
payment but merely a right to clear. Thus, even in a suddenly occurring crisis,
a run on the clearing banks cannot happen. Consequently, the system of non-cash
payments will insofar remain unshakeable in the future.
SOME REMARKS ON DETAILS
While the bills discounted by the
Reichsbank should mature in at most 3 months, for clearing banks a maturity in
4 months seems acceptable. Thereby, the needs of agriculture could also be
satisfied at the same time, seeing that generally it requires longer credits.
Similar as with the treasury
notes, the Draft secures the reflux by the condition that new issues depend on
a monthly reflux of 1/5 of the credits granted. It is notable, furthermore,
that the clearing banks can also buy or lend money on other claims, arising out
of goods sales or services rendered, than commercial bills. However, it is
decisive that all bought or otherwise held bills or claims must originate from
actually concluded sales of goods or from service contracts. Thus we have here
always SIMILAR TO THE DISCOUNT BUSINESS OF THE REICHSBANK only a so-called
DISCOUNT MONEY and NEVER a so-called LOMBARD MONEY.
It is the responsibility of the
clearing bank to check each bill to find out whether it refers indeed to a
goods transaction. This task is here the same as that prescribed by the Bank
Act for the Reichsbank. But the clearing banks, due to their smaller business
volume and their stronger personal ties, will find it easier to fulfill this
task than the Reichsbank does.
Finally, there is the clause
insisting that clearing banks are to be connected to an auditing office which
would have to receive a monthly report on their activities
If the above stated principles are
upheld in all credits granted then an inflationary effect is entirely excluded
as all cheques circulating are always balanced by short term claims which are
based on goods turnover or on equivalent service agreements. It may suffice to
refer here to Lexis’ "Handbuch der Staatswissenschaft"
(Handbook on Public Affairs), 3rd. edition, article
"With regard to the effect of the cheque on price developments, it is entirely neutral
whenever it arises only from real goods transactions. Lastly, it brings about
the exchange of goods and in this all participants have an interest in keeping
the measuring unit of exchange values, the value of the money unit, unchanged.
But whenever cheques are issued on the basis of financial bills or on Lombard
loans, which are not covered by goods but by securities, then they constitute
an arbitrarily added artificial purchasing power in the goods circulation which
has a price increasing effect - whenever this happens beyond the customary and
average existing degree - in the same way as it happens under similar
circumstances with the additional issue of banknotes."
Thus one can hope that through the
clearing banks an effective means will be established to fight unemployment.
Moreover, quite generally, the exchange of goods will be facilitated.
ASIDE THE ALL POWERFUL CENTRAL NOTE
ISSUING BANK IN BERLIN THERE WILL STEP FREE PAYMENT AND EXCHANGE COMMUNITIES IN
THE WHOLE COUNTRY. THE DISADVANTAGES SUFFERED BY THE PROVINCES AND AGRICULTURE
WILL END AND THE GOODS EXCHANGE WITHIN GERMANY WILL BECOME INDEPENDENT OF THE
GOLD OF FOREIGN COUNTRIES.
Dr. Walter Zander
Dr. Walter Zander was a lawyer and
refugee from Nazi Germany who settled in England. After the war he was a
representative of the University of Jerusalem in London and also something like
an unofficial ambassador for Israel. As a memorial, he had recently got
established a special website by his sons, see http://www.walterzander.info.
Prof. Dr. Heinrich Rittershausen was
the author of many books (bibliography is being prepared).
Click here for his biography.
Some of his works are available online:
However, his complete works,
containing more writings on monetary freedom, can only be found in the archives
of the University of Cologne of which he was Dean for a few years. Sooner or
later the case for monetary freedom will win - if mankind has a future left at
all - and these drafts can help to assure such a future if they are paid
If there is enough space at the
end of this fiche left then I will append the text of the German original for
the benefit of those who are rightly dissatisfied with my translation work.
For the time being I give this
platform to "Oberlandesgerichtspraesident i.R." (Supreme Court Judge, rtd.)
Dr. Best, who used to live in Darmstadt, and gave a review of Professor
Rittershausen's book on the 4 Law Drafts, in a 19 pp pamphlet published by the
"Sparerbund" (League of Savers), between
1932 and 1933. Please note here that I am still searching for a copy of this
book by Rittershausen. Dr. Best is not one of the co-authors of the Drafts and
is also not fully conversant with the monetary theory behind it but he approved
of the proposals on general principles. His style is one of the worst examples
of the public service idiom and much of this will, unfortunately, leak through
into this English translation.
Dr. Rittershausen, lecturer on
real estate credit (Realkreditwesen) at the university
of Frankfurt/M, made in his book "Das Andere System" (The Other System), published by Georg Stilke, Berlin, 1932, an economic
and financial proposal in 4 law drafts on which he has worked together with 6
other experts. As the ingenious expositions of this book are of special
interest for the, German saver and investor as well as for all who with them expect
ONLY FROM THE RETURN TO HONEST LEGISLATION AND ADHERENCE TO CONTRACTS,
I give them here in some extracts
from it and add only some short remarks. For a better survey and to facilitate
comparisons with the book itself, I offer the most important headings of the
book as well as the pages in which the subject matter is dealt with. I now
begin with the extract:
BREAK WITH THE PRESENT SYSTEM OF POLITICAL ECONOMY (pp 7-11)
Contrary to the time before Emperor
William II, the present monetary, banking and economic policy is characterized
LEGAL TENDER, CENTRALISM AND LACK OF
In all these respects the aim
should be the contrary of the present system and instead, we should strive to
return to the Prussian-German system which made Germany great and wealthy.
OF THE TWO GOVERNMENT SYSTEMS IN THREE PRINCIPLES (pp 12-35)
1. LEGAL TENDER
(THE PRINCIPLE OF COMPULSORY ACCEPTANCE) (PP 12-19)
Compulsory acceptance for banknotes
as full value means of payment, even in cases of depreciation - introduced in Germany
only since 1/1/1910— has created the legislative precondition for inflation.
Without it, inflation would be self evidently impossible. Without it, optional
means of payment can only ruin themselves in cases of abuses or over-issue but they
can never ruin the currency. One of the worst consequences of legal tender is
the destruction of the claims in millions of current debt contracts whereby
whole sections of the population are expropriated. While today’s governments refuse,
under protest, to repeal legal tender, Frederic the Great, Hardenberg
and Baron von Stein would have preferred a discount of the paper money to the
expropriation of creditors.
Likewise the wars of 1866 and 1870
were fought without legal tender. Only the modern German system led to
inflation through legal tender and continues to expose the people to the danger
of a new inflation. Therefore, the repeal of this fraudulent coercion is a fundamental
precondition for the restoration of the health of the economy.
The un-German centralized credit
policy which put the Reichsbank in the place of 33 private note-issuing banks, had in essence the following destructive effects on
ended the close contact with the daily goods distribution by producers and the
financing of their turnover credits and their wage payment requirements, by
means of the transformation of commercial bills of exchange into means of
unsound system of large corporations was bred. They were the result of legal
tender in connection with the repeal of the redemption obligation (which freed
the Reichsbank from the last restraints), the illegal breach of the real bills
principle and the forbidden discounting of financial bills of arbitrarily
allocated personal credits.
imposition of the Big Banks between the economy and the Reichsbank and,
thereby, the dictatorship in the sphere of credit exercised by a handful of powerful
directors - who have, moreover, a personal financial stake - on whose arbitrary
decisions whole branches of industry depend.
credit crisis of 1931 which protected, in the interests of the Reichsbank, the
artificially bred large corporations and destroyed the medium and small enterprises
which had remained healthy.
the abolition of small and medium enterprises the market for the major
industries was destroyed.
creation of a gigantic state trust system, distinguished from Bolshevism only
by the name, which pays billions in subsidies to these bred large corporations,
funds which the taxpayers can no longer afford. Thereby an overpowering
competition was established against the remaining independent industries which
will finally lead to a centralized production and distribution system according
to the Bolshevik model.
Salvation would only be possible by turning
away from centralization. But a sound provincial banking system could only
exist where the note issue would be decentralized also and no longer disturbed
and inflated by privileged institutions.
The question of national independence towards
international financial powers would be settled by the fight against
centralization. The dictatorship of the compromised directors of the large
banks must be broken and the financial independence of medium and small
industries as well as of farming must be re-established.
It is an intolerable situation when the
existence of millions is dependent upon arbitrary credit allotment by an
irresponsible central institution which, moreover, keeps its position only
through continuous breaches of the law.
Like inflation is possible only with legal
tender, so is deflation only possible under the note issue monopoly - which is
always associated with the centralized| credit system. If under a free banking
system an unsound bank would refuse to discount a sound bill of exchange, the
businessman concerned could receive this service from another bank, a sound
Only the note issue monopoly allows excessive
interest rates whilst under the free system interest would be reduced to the
handling and risk charge.
(NOTE by JZ: This applies only to
short-term or turnover credit!)
3. THE IDEA OF AN
The consequences of today's
dishonest legislation on general honesty in contracts characterize today's
unpopular and ineffectual economic policy. When, indeed, the Coinage and
Currency Acts are ambiguous, when one argues against inflation but retains
compulsory acceptance, when one talks of the gold standard but has in fact only
a paper currency, then such a system can only be called dishonest in the terms
of a "Rechtsstaat" (Lawful State). Legal
tender, which alone makes inflation possible, is not only objectively dishonest but also subjectively, as the Banking Act
of 1909 would have been senseless if there had not been, from the first, the
intention to enforce inferior payments as full payments.
The Coinage and Bank Acts are
ambiguous by only indirectly stating that 1 Reichsmark
would be equal to 1/2790 of a kg of fold and by talking of a gold standard
while really introducing a double standard or indeed a simple paper currency.
Likewise, the law on value preserving mortgages of 23/6/1923 is dishonest as,
in a concealed way, it permitted the retroactive renunciation of the agreed
upon gold clause (p. 33).
It is also dishonest when - in
agreement with this - the government continuously fights against gold pricing
and gold clauses and when malevolent debtors insist that when an inflation threatens all gold clauses should be repealed.
Moreover, it is also dishonest to continue covering up a foreign loan of 620
million Reich marks in the balance sheets of the Reichsbank. The State's
concept of "honesty", expressed in the current legislation, is
therefore to be considered as the final reason for the failure of all
government attempts of the last few years. The fight against distrust, crisis
and inflation could only be conducted victoriously by a return to the radical
concept of honesty upheld in the Germany of before 1890 and by its legislation.
The weakness of today's government methods would not lie in accidental
disasters but in the incapacity of their basic moral foundations.
With the shameful system of
compulsory acceptance, with a Bolshevistic and destructive centralization and
with ambiguous laws, no great country can be successfully governed in the midst
of difficulties and enemies. More effective government measures and policies
must be utilized and history shows where they were developed and what they have
achieved. This other system should be applied to today's situation.
III. THE MAIN
IDEAS OF THE 4 LAW DRAFTS
1. THE PRESENT
SITUATION AS A STARTING POINT (PP 37-44)
The continuance of the present
system would make the continuance of unemployment relief payments impossible,
as the government's cash is almost exhausted, and would thus lead to civil
unrest and riots and thus to inflationary note printing and finally to the
collapse. The function of a new system would be to make another
inflation impossible, to end deflation and to lower the disastrously
high interest rates in a natural way.
The way to achieve this can be
found by comparison between the conditions of 1923/4 and today. Then the
Reichsbank used only 7% of its means for the discount of commercial bills of
exchange and lent the rest illiquidly to the Reich.
Today, likewise, from its 3.5 billion Reich marks in credits, it has, breaching
the Bank Act in the some way, lent 1.5 billion Reich marks to the Treasury and
1 billion on long terms to illiquid financial corporations. Thus it could only
make 800 million or 21% of its means available for genuine turnover credit for
the economy. As it is impossible to achieve the distribution of a normal
monthly production of goods valued between 10 and 15 billions with such a
minimal cash circulation, today, as well as then, almost the total turnover of
goods has come to a standstill and in the absence of sales opportunities, the
prices of goods, real estate and securities have fallen to a minimum, reckoned
This situation is all the worse as
the note issue monopoly of the Reichsbank and the special prohibition of
private means of payment of October 31. 1931, have
penalized every self-help measure.
Plan brought a turn for the worse by requiring, for large public orders, still
further illiquid credits for the treasury - thereby further withdrawing credit
from the private sector.
At the end of 1923, the turnover
of goods was immediately restored by using half of the means of the
central-note issuing bank and almost all of the means of the relieved
Reichsbank to finance turnover credits. Thus, today, to end deflation, the
following steps should be taken:
establishment of an absolutely honest and value preserving currency and
reckoning in it.
The Four Law Drafts went still
beyond this and made provisions to achieve the natural settlement of existing
debt relationships - which, presently, ore mostly coercively disturbed. They
want to achieve this without inflation, devaluation, reduction or conversion of
debts etc. by extending the principle of clearing (paragraphs 387 -396 of the
German Civil Code ) contractually in the private
sector and by legislation in the public sector.
relief of the Reichsbank of the obligation to give credit to the Reich, the
German States, municipalities and financial corporations.
creation of a new and decentralized system for the issue of means of exchange
in order to fully satisfy the genuine requirements of the economy for turnover
2. THE RESTORATION
OF THE SHORT TERM CREDIT OF THE REICH THROUGH THE ISSUE OF NON-INFLATABLE
TREASURY NOTES (PP 44-54)
The hidden deficit of the Reich,
the German States and municipalities would run up to 2-3 billion Reich marks.
As the Reichsbank - over the circuitous route of the "Acceptance and
Guaranty Bank" and the large banks - has discounted financial bills of the
treasury for around 1.3 billion Reich marks and as about 1.4 billions are
circulating in Silver, already today almost half of the total money circulation
consists out of a camouflaged state paper money. To cover the new deficit with
the prohibited issue of irregular state paper money with an ENFORCED
CIRCULATION (LEGAL TENDER) would therefore mean inflation. Thus, in continuance
of the German, especially the old Prussian tradition,
the issue of treasury notes is required. The provision that the people need not
accept them at their nominal value, in case of depreciation, would prevent
inflation and their tax foundation would turn them into standardized tax
cheques. This tax foundation would consist in the obligation of the Reich, the
German States, the municipalities, the railway and the post office, to accept
these treasury notes at par in all payments, dues and for all services. This
would ensure an annual reflux of 18-20 billion Reich marks and would thereby
guarantee the full value of a circulation of only about 2 billion Reich marks
in treasury notes - much better than a gold or foreign
exchange cover could. Even in good times the issuance of such tax foundation
money world be recommendable - in order to avoid deflationary stoppages. But at
present, when government gathers to itself up to 45% of the total national
income in various taxes and dues, without supplying the means of payment
required for these dues, sales difficulties and unemployment are inevitable
consequences of such a deflation.
As a result of the issue of these
treasury notes, the Reichsbank would be significantly relieved of the burden of
discounting financial bills and would be enabled to make available to the
economy sufficient turnover credits - in fulfillment of its legal task.
For a transition period the tax
foundation should be retained for the so far issued notes of the Reichsbank.
Otherwise, they would depreciate because they are not based on sound commercial
bills of exchange.
As in spite of all precautions the
treasury notes and other means of exchange might, temporarily, depreciate and
suffer a discount, and in order to safeguard all transactions, the formerly
required official quotation should be required again, of all treasury notes,
banknotes and of all others of the most important means of payment - on all
German stock exchanges.
To safeguard the treasury notes,
the Drafts had provided that the issue of new notes must cease as long as their
rate is below 95% of their face value. Moreover, to increase the demand for
them, when a discount persists over six days, the Finance Minister should
instruct all public pay offices to accept only treasury notes in payment for
all or particular taxes.
3. THE REICH AS
AN RE-INSURANCE AGENT OF THE PEOPLE AGAINST INFLATION. A REICH LOAN WITH THE
HOARDED STOCKS OF NOTES (PP 55-58)
As the banks alone, on instructions of their customers, have to pay every day
more than 30 million Reich marks in dues, custom duties etc., the tax
foundation means an absolute guaranty for the people against
losses in treasury notes and old Reichsbank notes. But there are about 1-2 billion
Reich marks hoarded in Reichsbank notes. If these should suddenly be released
on the market then - in consequence of the past infringement by the Reichsbank
to the real bills doctrine (proper discounting of sound commercial bills) -
there would be the threat of inflation. To counter this danger, the Law Drafts
provide for advance payments at par on so far not yet determined tax amounts
payable in the future, using Reichsbank notes or treasury notes. The note
holder would thus obtain interest-bearing tax assets as emergency loans, assets
whose gold value would be guaranteed and whose exchange value could be kept at
par through free transferability. Thereby, a medium to long term government
loan could be achieved of about 2 billion Reich marks and with this the Reich,
the German States and the municipalities could repay their short term loans and
thereby make available, at the Reichsbank and the other credit institutions, a
corresponding amount of credit for commercial bill discounts.
In the interests of honest the
second Draft provides that the Reich, the German States and municipalities also
accept in payment for tax assets the securities of their own loans. Moreover,
these advance tax deposits are to be protected against subsequent devaluations,
prolongations and conversions.
RESTORATION OF THE LONG TERM CREDIT OF THE REICH (PP 59-65)
The quotation of public German
loans at, in the average, no more than 50%, undermines the credit of the Reich
and makes the placement of new loans impossible. This in spite of the fact that
in Germany the long term public debt is, compared with France and especially
with England (130 billion Reich marks) rather small and amounts for the Reich,
the German States and municipalities together, only to about 23 billion Reich
marks. The effective interest rate is enormously high as, at present there is
no internal demand for these securities. Thus the market rate of these loans is
to be returned to par. Otherwise, this floating debt cannot be consolidated
into non-recallable loans. The second draft aims at this through the following
government loan certificates, interest coupons and treasury bonds acceptable at
all tax offices, even 30 days before they fall due. This does also save means
of payment, enlarges the non-cash transactions and protects against deflation.
The rise in the price of
securities due to these measures would, in the interest of small savers and the
insured, improve the situation of the savings banks and insurance companies.
These institutions suffered market rate losses to the tune of several billion
payment of inheritance tax, which amounts every year to about 80 million Reich
marks, these certificates are to be accepted at face value long before they
fall due. This would considerably increase the demand for them at the stock
exchanges and would, therefore, raise their price.
Moreover, these measures, through
reduction of the excessively high interest level, would reduce the causes of
unemployment - without any public employment program. Through private
agreements, such a clearing of due loans could also be applied to industry.
5. CLEARING BANKS
ISSUING CHEQUE MONEY (PP. 66-90)
The principle of clearing must not
only be applied in government credit and in the sphere of loan transactions but
also in the settlement of the whole turnover of goods. For decades this has
happened more and more through current accounts and -cheques. But no turnover
of goods could take place without requiring at some spot money for wage
payments. Here the non-cash system of payments has failed so far. In this
sphere, therefore, the means of payment to .the Reichsbank were so far still
indispensable. This defect of the non-cash transactions would be corrected by
Draft No. 3, through the establishment of clearing banks. These should be
founded wherever there is an interest in them and they should be confined to
clearing transactions only and the issue of means of payment for clearing only.
The typified clearing cheque of these banks would grant - by means of the bank's
acceptance prescribed by the Draft - a direct claim of the bearer against the
bank. They should be freely transferrable and should,
apart from the signatures and dates of issue, be completely printed. They
should only be issued in denominations of 1,2,5,10 and
50 Reich marks and could then be spent by the bearer like money - but, selfevidently, they would be without compulsory acceptance
(legal tender). The clearing banks would be authorized to issue clearing
cheques only against sound commercial bills and other sound claims arising out
of sales of goods and services. None of these bills should run for longer than
4 months and their debtor must be known as solvent.
Competition between the different clearing houses would then assure that all the additional
turnover credit would be supplied which is required by the economy in order to
allow it to continue working, producing, transporting and selling.
The Draft has completely
satisfying guaranties to prevent an abuse of these cheques.
THROUGH THE ESTABLISHMENT OF THESE CLEARING
BANKS THE MONEY MONOPOLY OF THE REICHSBANK WOULD BE BROKEN AND THEREBY THE
INSTRUMENT OF THE INTERNATIONAL FINANCE CAPITAL WOULD BE LAMED.
Medium and small industry would
become most important. The breeding of trusts, managerial abuses ("das Tantiemenunwesen") as
well as corruption and subsidization would be made impossible.
The note issue monopoly of the
Reichsbank had so far - with the help of its legal tender notes, kept up the
interest rate much too high and prevented, thereby, the bringing together of
the unemployed masses with the masses of consumer goods which are ready for
sole or could be produced.
The so-called interest slavery
could not be broken by lowering the interest rate by a few percent by means of
emergency decrees but only through assuring, by means of a system of clearing
banks, that each sound claim, arising out of deliveries, can at any time be
transformed into means of payment. Thereby, the monopoly of the Reichsbank
would be broken, a monopoly consisting in its exclusive privilege to transform
bills of exchange into banknotes.
The arbitrariness in the granting
of credits would also disappear as a consequence and competition would soon
reduce the interest rate to the costs.
(Note by JZ: Like many of his predecessors,
e.g. Proudhon, Tucker, Mackay, the mutualist school of free banking advocates
and K.H.Z. Solneman, Dr. Best does not distinguish here between short term
credit (for which the interest rate could indeed be greatly reduced by a
competitive supply of turnover credit) and the interest rate for medium and
long term capital investments - which requires for its reduction, among other
things, a greater supply of such capital. This cannot be achieved on the
commercial bill principle alone. Freedom for these short term credits could
only indirectly promote the medium and long term capital market by indirectly
increasing the supply of such capital. This will follow when competition in
turnover credits will lead to the utilization of all resources, especially
labor and so far underused machine capital, because all goods and services
needed can under the new conditions easily be sold - or rather sell themselves
to a considerable degree. This increased turnover will allow more capital
formation and only this will finally lead to some reductions in the rates for
long term capital - never merely towards administration costs plus risk
charges. Lack of this particular insight has done the cause of free banking
The clearing banks are mainly
designed for medium sized towns and cities and for the countryside. Their
clearing cheques are not redeemable in metal or in the national paper currency
but only through purchases in the stores associated with the bank as well, in
the fashion described below.
The clearing banks are intended
not as NEW banks but essentially as cooperatives and share companies whose
partners are the local banks. The local banks would thus become independent of
the restrictive policies of the Reichsbank and of its high discount rates.
As inflation is possible only
under compulsory acceptance (legal tender) and deflation only under the note
issue monopoly, the currency could be steered between the Scylla of inflation
and the Charybdis of deflation only under the system
of clearing banks.
Already twice before in history
was the clearing system used as the classical means in the fight against
deflation. Once, in England, when in 1844 Peel's Bank Act brought a long
lasting deflation, and secondly, in Germany, when Reichsbank President Koch
recommended the Cheque Act of 11/3/1908 in order to loosen the note issue
As clearing cheques are neither
banknotes nor subject to legal tender (compulsory acceptance), they would, like
the Reich treasury notes, not at all infringe paragraphs 2 and 3 of the Bank
Act of 30/8/1924. While, indeed, its par. 39 prohibits the "unauthorized"
issue of other bearer bonds, these issues could easily be "authorized"
by a special law (the Drafts).
Any difficulties arising out of
international ties of the Bank Act could be abolished through negotiations with
the B.I.Z. in Basel.
Apart from the abovementioned use
of the cheques for purchases, they could also be used for credits on current
accounts with the issuing bank. Such an account could only be disposed of by
transfers and clearing cheques - which would make the system completely safe.
Payments by clearing cheques could
take place, without any friction, only within the circle of customers of the
clearing bank. As a retailer would, mostly, have received credit from the
clearing bank — which he can repay only in clearing cheques - he could reduce
his debt by acceptance of the cheques and the resulting demand for the cheques
would keep them at par.
Their exchange rate at par with
their nominal value would also be assured by the short term run of the credit
granted by the clearing bank, a turnover credit granted usually by discounting
commercial bills. Thus all circulating clearing cheques would within a few
weeks after their issue, be withdrawn again from circulation (reflux).
Naturally, the clearing banks would have to accept their own clearing cheques
at par. Par. 7 of Draft 3 includes a guaranty of the reflux and precludes
abuses by stating that the clearing banks may issue preprinted forms for
clearing cheques and purchase or make loans on bills and other claims only when
within the preceding month one fifth of all those debts have been repaid which
were outstanding at the beginning of this month.
Difficulties would no more arise
out of the variety of means of payment than arise now out of the fact that,
aside the Reichsbank notes there circulate silver coins, Rentenbank
notes and the notes of 4 private note issuing banks, all of which are not
subject to legal tender. Moreover, there is only the choice between a uniform
monetary system with a destructive formalism and decentralization with a
The system of clearing banks
should be interconnected by centers for non-cash-payments. This is of especial
importance for agricultural credit. In this sphere the centralized banking
system was so far especially disastrous because agricultural bills were usually
not acceptable to the Reichsbank - while the "Preussenkasse"
would hardly be of any significance any longer for turnover credits. The
agricultural problem could not be solved in the long run through tariffs and
subsidies. Agriculture would not have to beg for purchasing power - because it
would have this power in its own products. If agriculture were permitted to
open up - aside the blocked channels of the Reichsbank - an avenue for
clearing, then the problem of the exchange between agricultural and industrial
products would be solved. Produce and goods would in this way create their own
means of payment and the goods circulation would be freed of the fetters of the
money monopoly. Writers of social significance have seen here the starting
point for the solution of the social problem.
PRESERVING ACCOUNTNG AND NON-INFLATABLE CURRENCY, ACCORDING TO THE
PRUSSIAN-GERMAN SYSTEM (PP 90-104)
The whole system of clearing - in
the public and the private economy - stands and falls with the stability of the
value standard used, the "Reichsmark". The
here explained double meaning of this concept in the currency legislation, has
created a situation where there are only political obstacles for an inflation
of the Reichsmark but no longer any legal ones.
Thereby confidence in a steady economic development and the inviolability of
contracts has been undermined. The concept of the Reich mark should therefore
be legally guaranteed. This would be done through the following clauses in
Draft 4 :
1 provides that in all payment and credit transactions, regardless of the
exchange value of means of payment, all reckoning is to take place in stable
These provisions would achieve
that in contracts and other debt relationships all reckoning would be based on
the new stable unit and that offered means of payment would be accepted at face
value as long as on the stock exchange they are quoted at par. Otherwise, they
would be accepted only at their market rate. (Note by JZ: If accepted at all
and not refused altogether.)
paragraph states that gold is the value standard and the unit of value
reckoning is the Reich mark and that this is defined as equal to 1/2790 kg. of fine gold.
4 states that nobody is obliged to accept banknotes at par in payments which
ore legally to be made in gold.
No difficulties would arise. The
German Civil Law Code has also taken the position, that there is no compulsory
acceptance for paper means of payment.
This ruling would be welcomed by all
honest people but, naturally, fought by all who want to free themselves of
their debts by another inflation and who would like to
see even all gold clauses repealed as soon as inflation takes place.
While under the present
"inflationary system" the value of the means of exchange is invariable
and the unit and the price system variable, under the proposed system, the
price system would be invariable - from the side of gold - and only the means
of payment would be variable - in accordance with the Prussian-German system.
In 1923, too, there was value-preserving reckoning and accounting, regardless
of the fluctuating value of the means of exchange. The then arising
difficulties would be avoided when, with the proposed guaranties, the means of
exchange would be as well kept at par as this was done before the war with the
notes of the Reichsbank which had, likewise, no legal tender before 1910.
The author then gives detailed
explanations on how to determine the gold price and shows that the quotation of
gold at the exchanges is in reality that of the various paper means of
exchange. He also points out that the publication of the price of means of
exchange is necessary to the classical Prussian-German financial system.
Finally, the author explains that
gold must be retained as VALUE STANDARD because it in subject to the least
price fluctuations. BUT AS MEANS OF PAYMENT AS WELL AS COVER for the other
means of payment, he wants to exclude it. The cover is to be assured, according
to him, exclusively by the reflux. In order to avoid repetition, I will give
the reasons for this only in my review of the proposals.
7. THE RECOVERY
OF THE REICHSBANK AND THE DEPOSIT SYSTEM (PP 105-115)
Deposits, in 1931, had achieved
the unhealthy height of double the pre-war volume. This would be changed by the
clearing banks which would reduce the interest for good credits to 2 to 3%.
Thus they could not pay any or only low interest for deposits. Thus many
depositors would transfer their non-interest bearing deposits into securities
and thus make available to the economy the required capital directly, long term
and not withdrawable.
At the savings banks, also, the
extraordinary condition should be abolished that the debits are daily reclaimable
while the assets are invested on long terms.
Through continuing breaches of the
Bank Act, the Reichsbank has become a very sick institution. Its stock of bills
of exchange consists, contrary to the law, for a full two thirds out of
illiquid financial bills of the public purse and of industrial enterprises
which are in trouble. Thus the Reichsbank, on the one side, has become unable
to fulfill its function to provide turnover credit and, on the other side, its
notes have no longer the required reflux. Its notes are kept at par only by means
of tax foundation and legal tender and do thus continuously threaten the
To preserve the Reichsbank for the
economy, it is proposed to divide the Reichsbank business - as happened after
the inflation - into old and new business. The Reichsbank would have to cease
immediately the issue of Reichsbank notes of the old type and would have to
issue new ones, clearly distinguishable, which are strictly subject to the
current Bank Act and thus issued exclusively against good commercial bills
maturing within three months. The reflux and thus the full safety of the new
notes should further, similar as with the clearing banks, be guaranteed by the
clause that the Reichsbank may issue further notes only when during the
previous calendar month a quarter of the loans outstanding at the beginning of
this month have been repaid. This is to apply only to credits granted after the
new Draft Law has come into force.
Those men among the experts who are
dependent, would, naturally, fight this ruling but the principle of honesty and
a guaranty against inflation could only be realized in this way.
Furthermore, and in accordance
with the Bank Act of 1875, the control of the Reichsbank through the Auditor
General should be restored.
While the new notes of the
Reichsbank would keep at par, even without legal tender and tax foundation, by
means of the reflux, and whilst they could, therefore, be used for deposits on
Reichsbank current accounts, the old notes should not be thus accepted - in
order to prevent their exchange into the new notes. But the value of the old
notes should be preserved by giving them the tax foundation for a transition
period. After this period, the value of the old notes would consist only in
their usefulness to-repay the old Reichsbank loans to the Reichsbank at par.
All old and new notes returned to the Reichsbank should be destroyed, in
accordance with the English system.
The first 3 Law Drafts would also
have their effects on the Reichsbank. The issue of treasury notes would relieve
it of about one billion in illiquid bills of the treasury and would free the
sphere of credit for the economy.
The lowering of the note
circulation would improve the cover ratio.
The establishment of the system of
clearing banks would destroy the Reich bank’s monopoly on the market for means
of payment and would free it to adapt its interest rates to the market
If, as a consequence, the interest
rate for 1st. mortgages would be reduced to 4 or 5%, then a thorough recovery
of agriculture and industry would be initiated.
Upon the considerations above
given in extracts, the FOUR LAW DRAFTS are based TO FIGHT DEFLATION, PREVENT
INFLATION AND LOWER INTEREST RATES. They were worked out in collaboration with
Gustav Ramin, Ulrich von Beckerath, Hans Meis, Walter Unger and Walter Zander.
(NOTE by JZ: The sequence of the 4 drafts has
later been changed. I quoted above, in the draft, the new version or sequence.
Dr. Best, below, lists them in the old order, the sequence hardly matters but
this note may help avoid confusion.)
The first Draft, on treasury
notes, regulates, in essence, the authority to issue, the denominations, the
text, the determination and publication of their exchange rate, the publication
of statements, their compulsory acceptance for public pay offices only - as set
out in detail - as well as their temporary nature as exclusive means for paying
The second Draft, on facilitating
tax payments through the transfer of due bonds and accounts, makes provisions,
in accordance with the previous explanations, regulates , how taxes and tariffs
can be paid through the delivery of securities and the assignment of claims
owned by the taxpayer, as well as with interest coupons, all already 30 days
before they fall due. This Draft then settles the establishment of tax assets,
interest payment on them, inheritability and transferability of such assets, favored
acceptance of not yet due tax payments and debt titles in payment of death
duties, as well as the protection of tax assets against conversion and
consolidation of the surrendered securities.
The third Draft, on clearing
banks, contains, in accordance with the aforesaid, the rules on clearing banks,
on their duties and rights and control, as well as on the requirement' of
clearing cheques and their protection.
The fourth Draft, on value
preserving reckoning and the relief of the Reichsbank, puts into legal form all
details given above. It should only be mentioned that all debt relationships
existing at the moment the Draft becomes law, are to be considered as
value-guaranteed (par. 9), that market rate deviations of means of payment in
circulation, amounting to less than 1% are , in case of doubt, to be ignored
(par. 6) and that creditors may refuse the acceptance of payments in cases
where the determination or publication of the exchange rate of means of payment
or the allotment of gold or foreign exchange has been restricted for more than
6 days - until these abuses have been ended (par. 7).
The exclusion of gold as means of
payment, mentioned in the explanation to these drafts, finds no expression in
the Drafts. On the contrary, for reasons to be discussed later, par. 3 states
that gold coins of the Reich are the only means of payment which has to be
accepted without limits in general circulation and at its face value.
(Note by JZ: The above is the summary by Dr.
Best of Prof. Dr. Rittershausen's book on the Four Law Drafts, titled "The
Other System". The following is Dr. Best's review of the Four Law Drafts,
in the same pamphlet. Regarding the last paragraph of the above, I would like
to suggest that Dr. Best has not sufficiently read the second part of the par.
3 he quotes, which does, indeed, partly exclude gold as means of payment,
namely as a means of payment which a debtor HAS to offer or a creditor CAN
DEMAND. This is a very important distinction which is all too often overlooked.
Only in the latter two legal positions have gold coins, as means of payment
ever created any difficulties. The right to pay in gold, whenever one was
sufficiently supplied with it, rarely lead to any
difficulties and few creditors would refuse such an offer, if legally allowed
to accept it. In some instances the demand that payment be in gold has been
compared to the torture of a deaf and dumb man in order to extract a confession
from him. This distinction is so important that a whole book could and should
be written about it. The potential harm done by this legal position in times of
a money shortage is as great when the obligation and demand extend not to gold
or silver coins but to any other exclusive currency instead, e.g. to the
present state paper money. The wrong underlying premise is always that the
State can and does supply every "legitimate" requirement for cash
means of payment, regardless of the experiences we had with this.)
In the above I have shown the main
thoughts of the drafts. But as my exposition had to confine itself to a small
fraction of the 135 pp book, the study of the book itself (price 1,30 RM) is to
be recommended, especially to those not familiar with the relevant economic and
The drafts themselves, with an
explanation by Dr. Walter Zander, Berlin, appeared also separately and are
available through the League of Savers of the German Reich..... (old address left out. JZ)
I welcome these Drafts because I
believe that they are suitable to counteract the collapse of the economy. They
are juridically carefully drafted and logically
established and strive to achieve a future of HONEST LEGISLATION and a RETURN
TO TRUST AND GOOD FAITH in transactions.
I agree with what the author of
the book has to say on the DOUBLE MEANING in our present CURRENCY LEGISLATION.
I also concur that, according to
the unanimous opinion of the science of finance, INFLATION IS NOT POSSIBLE
WITHOUT LEGAL TENDER. This is very clearly expressed in a Royal Prussian
regulation signed by Baron von STEIN, on October 23rd. 1807. There the
acceptance of the treasury notes issued is made dependent on the FREE WILL OF
THE CREDITORS and this is justified by stating, literally:
"It could not remain unknown to us that
this paper money would thereby lose still more in exchange against Silver coins
than happened already before due to the restricted redemption - BUT WE SAW
AND STILL SEE THIS AS A MINOR EVIL COMPARED WITH THE INCENTIVE TO DISHONESTY
ARISING OUT OF THE POSSIBILITY TO FORCE UPON A CREDITOR PAYMENT IN PAPER MONEY,
WITH AN ENFORCED PAR VALUE, WHICH IS AT A DISCOUNT, AGAINST COIN, DUE TO ITS
RECEPTION BEING INTERRUPTED."
On the some honorable foundation
stood an IMPERIAL AUSTRIAN LAW of the first of June, 1816. In agreement with
this, par. 2 of the BANK ACT of 14/3/1875 (RGBl. S.177)
determined that there is no OBLIGATION to accept banknotes legally payable in gold.
Only article 3
of the law to change the Bank Act of 1/6/1909 (RGB1. S.515) commanded "The notes
of the Reichsbank are legal tender" and thereby FORCED everyone to accept Reichsbank
notes at their NOMINAL VALUE, no matter how much their MARKET VALUE had fallen
under their nominal value.
Obstinately, the then Imperial
Minister of Finance and the Chancellor held on to this ABSURDITY,
THUS THEY HAVE RUINED THE GERMAN SAVER.
(Note by JZ: Ulrich von Beckerath pointed out
to me that during the Bank Enquiry of 1908, which led to the legal tender act, it
was openly admitted that legal tender was to be introduced with regard to the
war already foreseen then. It could, according to doctrinal opinion, not be
financed without inflation and, indeed, at least this war was unpopular enough
to make this rather likely. In the few cases when the warlike actions of a government
are popular enough, then the population is also willing to face the real costs
directly. They have, anyhow, with inflation or without, to come out of present
earnings and wealth. If I had the text of the Bank Enquiry, which followed the
financial crisis of 1907, then I would quote here the relevant passage.)
While honest people, without a
doubt, will welcome the repeal of compulsory acceptance (legal tender), it will
naturally, be ENERGETICALLY RESISTED BY THOSE DESIRING ANOTHER DEBT REPUDIATION
THROUGH A NEW INFLATION. Reaction to the proposals will reveal whether the NEW
government is SINCERE with its return to HONESTY and whether it will see to it
that in future NOBODY WILL BE CHEATED ANY MORE due to a lowering of the value
I do also agree with the author
that a deflation, i.e. a shortening of credit and a continuing price fall, is a
phenomenon accompanying CENTRALIZATION OF CREDIT and the associated NOTE ISSUE
As the abolition of the credit
monopoly will also abolish the INTEREST MONOPOLY and will disturb the LARGE
CORPORATIONS AND THEIR MISMANAGEMENT (literally: "Trust und Tantiemenwirtschaft") and the ARBITRARY RULE OF THE
DIRECTORS OF THE LARGE BANKS, the Drafts will experience a strong resistance
from these quarters, also.
I do, likewise, welcome the way in
which the Drafts
satisfy (at a time when tax increases and loans are impossible ) the short term
financial requirements of the treasury, through the issue of treasury notes
I would like to point out that the
proposed treasury notes have also a precedent in the Act on Treasury Notes of
30/4/1874 (RGBl. S. 40) which in its turn was based
especially on Prussian and Austrian previous legislation.
create a steady DEMAND for government securities by CLEARING them AGAINST TAX
DEBTS, thus RAISING the price of these securities and preparing the ground for
The relationship of the here
reviewed Drafts to the articles 1 and 2 of the Draft of Proposals to PROTECT
SAVERS, which I published recently in the last D.V.R., is the following:
In the introduction to article 2
of my draft, I explained that I do not make proposals for a currency reform
because the World Economic Conference would deal with this. Thus the paragraphs
1 & 2 proposed by me should only provide relief until the reform occurred.
The proposals of Dr. Rittershausen and his collaborators are such a reform
which I would heartily welcome for Germany. Their PROTECTION OF THE VALUE OF
ALL CLAIMS is in fundamental agreement with sec. 1 of art. 1
of my draft. (I will return to art. 1, sec. 2 and art. 2 of my draft
later and art. 3-8 of my draft remain untouched by the
Four Drafts explained here.) The fact that I agree, fundamentally, and in all
essential details, does not exclude the following remarks:
The study of the book has left me
in doubt whether Dr. RITTERSHAUSEN sees in the drafts a universal panacea
against unemployment or only expects of them a revival of the economy in the,
indeed, very frequent cases where the masses of goods to be exchanged are
present on both sides but the existing credit restrictions have so far
prevented the required turnover. Then the proposed system would provide the
turnover credit needed for wage payments, new production, dispatch etc.
With this qualification I consider
the reference in the book convincing which showed that in 1923/4 the provision
of the required turnover credit did soon end the stoppage of the economy and
made the unemployed disappear from the streets. This case is backed up by an
article of Dr. RITTERSHAUSEN on "AUSGLEICHSKASSEN" (Balancing Pay
Offices) in No. 19 of "Bankwissenschaft"
(Science of Banking) of 5/1/1933, p. 577, in which he showed that WUERTTEMBERG
and to a similar degree the other German States with private note issuing
banks, had the LOWEST UNEMPLOYMENT in Germany. The notes of these banks are NOT
LEGAL TENDER but are kept at par as these issuing banks - very different from
the Reichsbank - STRICTLY FOLLOWED the principles of banknote issue and thus
they remained able to sufficiently finance the turnover credit of the economy
in their sphere.
(Note by JZ: These remaining 4 note-issuing
banks had a legal limit on their circulation and were completely outlawed in
1935. Moreover, these German States were, naturally, also affected by the crisis
in all neighboring States and could, with their limited means, not overcome all
these effects. )
By the way, DR. RITTERSHAUSEN
states in this article the SAME view on HERPEL-DICKEL’s
CREATION OF CREDIT OUT OF NOTHING which I have explained in two essays. He
shows that their "Ausgleichskassen"
(Balancing Pay Offices) are indeed PAY OFFICES TO PREVENT BALANCING and that
they would thus HINDER instead of promote the provision of employment.
If we assume, after the above,
that it has been proven that the realization of the Drafts would everywhere
REVIVE THE ECONOMY where so far the required turnover credit was missing, they
remain WITHOUT immediate effect WHEREVER sales are restricted due to the
post-inflation CURRENCY REFORM LEGISLATION HAVING TRANSFERRED THE SAVINGS OF
MILLIONS TO A MUCH SMALLER CIRCLE OF INFLATION PROFITEERS whose PURCHASING
REQUIREMENTS are thus MUCH SMALLER than those of the people expropriated by the
inflation. Thus my support for these Drafts does not diminish my FIGHT FOR THE
RESTORATION OF RIGHTS. The Four Drafts will be effective only for the FUTURE,
while the restoration of CONFIDENCE requires also the abolition of PAST wrongs.
Regarding the treasury notes
provided for in the draft, I point out that they have something of an example
in the Tax Warrants issued by the government. Apart from other differences,
which I will omit, the two differ essentially in the following:
The treasury notes are designed as
MEANS OF PAYMENT, the Tax Warrants only as CREDIT SECURITIES to obtain Reichsbank
notes. Contrary to the tax warrants, there is no maximum amount for the
treasury notes to be issued. While the Four Law Drafts provide for safeguards
for the par value of the treasury notes, no such provision is made for the tax
warrants. The treasury notes establish a sharp division between the good money
of the economy, based on commercial bills, and the paper money of the State.
The-TAX-WARRANTS, on the other hand, do not reduce the CENTRALIZATION of the
monetary system but, instead, INCREASE it.
Especially important is the
financial result for the treasury which sets them apart. The government issues
the tax warrants FREE OF CHARGE and thus REDUCES the RECEIPTS of the Reich by
1,500 MILLION Reich marks - without it being certain that the hoped-for benefits
from the employment of unemployed will justify THIS ENORMOUS REDUCTION IN
INCOME. The issue of treasury notes, on the other hand, brings, compared with
the discounting of financial bills at the Reichsbank, savings to the
government, in interest payments, amounting every year to between 50 and 100
million Reich marks.
Concerning the treasury notes it
would have to be established still whether and how far, through the acceptance
obligation of the German States and municipalities, financial balancing would
be affected to their disadvantage.
Regarding the legal questions, I
agree with Dr. Rittershausen (pp.78/9) that the typified bearer cheques, too,
would not offend against the note issue monopoly of the Reichsbank and that the
issue of treasury notes is not outlawed by the Bank Act. But I am in doubt
whether the unauthorized issue of bearer cheques, outlawed by par. 39 of the
Bank Act, could be legalized merely by on internal German law on clearing
cheques. But I am without a doubt that par. 3 of the Bank Act of 30/8/1924 is
infringed when the Draft of a Law on Stable Value Reckoning repeals, in par. 4,
sec. 1, legal tender for banknotes. As this particular Bank Act can be changed
-because of international obligations, up to the ratification of the Treaty of
Lausanne, only with the agreement of the signatory powers, represented by the
B.I.Z. in Basel, or through the international arbitration court referred to by
it, and as the achievement of, this consent is all the more doubtful as the
abolition of legal tender for banknotes Interferes with the note, credit and
interest monopoly of high finance, which is exclusively represented in the
administration of the B.J.Z., I expect that the realization of the proposals as
a whole will encounter considerable difficulties.
(Note by JZ: Only those who see an
international financial conspirator under every bed and who believe in the
binding power of every immoral legal restriction, would see real difficulties
I do agree with Dr. Rittershausen
that a restriction of self-determination of the German people in this respect
is, from the national as well as the economic point of view, INTOLERABLE.
A good credit organization, which
is the aim of these Drafts, should, moreover, fail all the less because of the
selfish interests of high finance because, from the international point of
view, it would lead to a calming down of great importance.
I REFER THE NEW MEN, IN POWER OVER THE NATION,
TO THE FACT THAT THE CENTRALIZATION OF CREDIT IN THE HANDS OF A NATIONS BANK WITH
AN EXCLUSIVE NOTE ISSUE MONOPOLY, IS AN ESSENTIAL PROGRAM POINT OF THE
COMMUNIST MANIFESTO WORKED OUT BY MARX AND ENGELS IN 1847/8, IN ORDER TO
EXPROPRIATE THE BOURGEOISIE AND TO ESTABLISH THE DICTATORSHIP OF THE
In this context, I would like to
suggest a clarification in the contents of the Drafts. The Draft on Reich
treasury notes states, in par. 6, that Reich treasury notes have to be accepted
neither at their nominal value nor at any other value. When, different from
this, the Draft of a Law on Stable Value Reckoning, simply states in par. 4
sec. 1 that there is no obligation to accept banknotes then, what is meant, can
only be acceptance at face value. (Compare also par.
7) This appears necessary as there has to be ONE means of payment with which a
debtor, even if only at its market rate, can fulfill his obligation. But this
should be stated expressly to dispel all doubts.
Such doubts are also left, by sec.
3 of par. 3 of the Draft on Clearing Banks. I assume that creditors would, in
these cases also, have to accept banknotes, treasury notes and coins only in the
framework of the otherwise applying principles.
(Note by JZ: GOLD has indeed unlimited
compulsory ACCEPTANCE in the settlement of debts, according to par. 3 of Draft
Dr. Rittershausen explains that
his Four Law Drafts should also protect us, contrary to the present legal
position, from ADMINISTRATIVE MEASURES. But with regard to the fundamental importance
of the currency, even LEGISLATIVE CHANGES are to be suspected. They can be made
all too easily, especially at a time when the constitutional nature of many Emergency
Acts is very much in doubt.
Moreover, in practice, well managed paper
money was rarely ever refused. This was e.g. revealed in the German Bank
Enquiry of 1908. This Enquiry was able to confirm only a single case which
happened in Munich in 1876. See: Protokolle der deutschen Bank Enquete von 1908, vol. I, p.192 - here referred to from Peace
Plans No. 9, p. 54. Please compare also point 33 of the Human Rights draft,
which is reproduced in the introduction to this fiche issue of the Four Drafts.
In this review Dr. Best seems to deal only with the original version of the
Drafts, not with the amendments to e.g. par.3 of Draft 1 which Dr.
Rittershausen added in the book supposedly reviewed by Dr. Best.)
In par. 1, sec. 2 of my draft, I have,
therefore, proposed to protect the clauses of sec. 1 not only against
Invalidation through emergency decrees but to make their alteration possible
only through a constitutional change requiring a large majority. Because of the
power and influence of those circles which, in the interest of a FRAUDULENT
DEBT REPUDIATION CONSTANTLY STRIVE FOR AN INFLATIONARY CURRENCY DETERIORATION,
such proposals are also recommendable for the Drafts.
Although in every other than a
circulating gold coin currency, the security of a currency depends, essentially,
on the realization of measures considered necessary by the legislators for the
protection of the note circulation and on their conscientious realization by
the institutions authorized to apply them, nevertheless, the Penal Code of the
Reich, in par. 146 and the following, provides penalties only with the aim to
protect the population against the manufacture of forged or the alteration of
genuine money tokens.
Thus LEGISLATION has provided NO
PROTECTION at all in cases where through the NEGLECT OR PRESCRIBED
PRECAUTIONARY MEASURES (like cover, discount rate, permitted business etc.),
those means of exchange having no inherent value, become more or less VALUELESS
SLIPS OF PAPER. This in spite of the fact that damages through forgeries are
RELATIVELY SMALL while the UNDERMINING OF THE CURRENCY leads to damages
measured in billions. I have, therefore, in art. 2 of my draft,
provided for corresponding penalties and for restitution and offer for
consideration whether the Four Law Drafts should not be supplemented in a
The Draft of a Law on STABLE VALUE
RECKONING etc., states in par. 3:
"Reich gold coins shall be the sole
means of settlement that must be accepted in economic dealings to an unlimited
extent and at their face value."
But on pp. 102-104 of the book the
insistence is, indeed, upon retaining gold as a standard of value, while
excluding it as a means of payment and as a cover for banknotes and Reich
treasury notes. As means of payment, according to the Drafts,
should be considered only the various forms of banknotes, Reich treasury notes,
bank transfers and clearing actions - all WITHOUT COMPULSORY ACCEPTANCE.
As the texts do not preclude a gold circulation currency and as such a currency
is out of the question immediately, as there is not a sufficient gold stock in
Germany, I would abstain from further remarks in this direction. But to clarify
my fundamental position, I state here that I am a convinced follower of a gold
(Note by JZ: Dr. Best does, unfortunately,
not distinguish between:
Apart from the fact that Germany
was rich and honest under it, it appears to me especially desirable because it
protects creditors against losses from the side of the currency and he
possesses in the gold received a value which is safeguarded against subsequent
depreciations under ordinary circumstances. This is quite contrary to the gold
core and all other currencies, in which the creditor does not get into his
hands a real and inherent value but merely, by means of a money token, which is
in itself valueless, a legal claim against the cover consisting of gold, real
estate or any other currency base, and which is, therefore, subject to
fraudulent manipulations and dependent on exact adherence to the prescribed
of payment one may rightfully offer, like gold coins (Draft I, par. 3) and few
people are likely to refuse these, and
means of payment one may legally demand even if
the debtor has none of them. On these see the second section of Draft I, par. 3
and also par. 3a which Dr. Rittershausen added.
I believe that the fifth word in this par. 3a:
"such", indicates a translation mistake. I have only the English
version and am still seeking the Germany original. If "such" is replaced by
"clearing" then this passage makes sense.)
(Note by JZ: The authors of the Four Law
drafts were very far from being opposed to the circulation of honest gold
coins, even of private ones, competitively minted. They only opposed gold coins
as an EXCLUSIVE exchange medium, as one demandable by a creditor, as one which
a debtor MUST supply. They favored its legal tender in payment to creditors
when the debtor was sufficiently supplied with them. But sound gold coins
hardly need such a legal tender power. They also opposed it as an exclusive
cover for banknotes and clearing certificates etc. Convertibility of notes etc.
in to metallic gold they wanted to refer to the free gold markets, which,
between them, hold the greatest gold treasure chests - or quantities of gold
coins and gold bullion. J.Z., 28.8.05.)
Moreover, I believe that monetary
exchanges are considerably facilitated when, as under the Bank Act of 1875,
which was valid up to 1910, at least ONE means of payment) has WITHOUT A DOUBT
The advantages would not be too
highly paid for through a small dependence on the owners of gold mines - which
was, according to my knowledge, not considered as oppressive before the war. As
for the rest, I refer to an article that I have written, titled "Gold- oder Bodenwährung" (Gold or
Real Estate Currency) and published on 22/8/1931 in "Deutsches
Volksrecht" (German People's Rights). I add that
the reflux as guaranty for notes does not preclude the increased security
provided by a gold redemption - as provided in the various Reichsbank Acts.
Moreover, Dr. Rittershausen, with whom I discussed the question, wrote to me
that he shares my opinion on a gold circulation currency.
(Note by JZ: Here, again. Dr. Best did not
discuss the distinct provision of the Four Law Drafts, in Prof. Dr.
Rittershausen's version, which gave GOLD LEGAL TENDER WHEN OFFERED BY A DEBTOR
BUT GRANTED NO CREDITOR THE RIGHT TO DEMAND IT IN PAYMENT. (Draft I par.3.) He
merely stated his own preference, ignoring this ingenious proposal. Neither of
the co-authors of the Drafts was, to my knowledge opposed to a gold coin
circulation. They only opposed such a currency as an exclusive one. They
welcomed honest gold coins issued by a government and also private gold
coinage. They believed that under monetary freedom at least some gold coins
would freely circulate, together with various paper money tokens, the latter
being so carefully issued and controlled that they would remain at par with the
gold coins. The circulation of at least some gold coins would be an asset to
such a system. People could then test in daily exchanges that their paper money
is still at par. The possibility of the discount is essential to stop and
At the opening of the new
Reichsbank building in Frankfurt/M, Reichsbank President Dr. Luther spoke a
short time ago on interest policy and currency. He stated that IT WOULD BE
FUNDAMENTALLY WRONG TO INTERFERE ARTIFICIALLY WITH THE RISE AND FALL OF
INTEREST RATES AND WITH INTEREST RATE AGREEMENTS BETWEEN CREDITORS AND DEBTORS,
JUST TO REDUCE THE INTEREST RATE. But it would be reasonable to strive for an
organic and economically justified reduction of the interest rate level.
Lastly, only free competition between various
systems for the issue of notes will settle the question whether there should be
in use either an additional or an exclusive security in form of a 100% gold
convertibility by the issuer, or not. In my eyes it would waste the capital
represented by the gold reserve and thus make such note issuers less
competitive. (Such issuers are certainly inclined to outlaw all competition. I
would not but would rather rely on the right to refuse acceptance.)
I would, with Ulrich von Beckerath, rather
see any gold redemption desired referred from the issuer to the free gold
market. On the free gold market any paper means of exchange which reckons in
gold and is honestly administered, should, usually, be dealt with at par with
their nominal gold value and this in spite of the fact that the total of such
money tokens is likely to exceed by far the total gold stock of the world.
Anything as good as gold is good enough for
me and for most other people - and this requires only an investment in paper,
ink and some thought, no treasure or capital at all. It is wrong to assume that
only 100% convertibility into gold - or another rare metal - can achieve this
for any paper money. There are many historical instances which should, perhaps,
be listed somewhere, perhaps in my future handbook on monetary freedom. So far
there is agreement, among libertarians only, in the condemnation of the present
types of paper money. 100% covered by rare metals and redeemable or convertible
banknotes would, indeed, be better, as far as their value standard is
concerned, PROVIDED ONLY that they are not introduced and maintained as another
EXCLUSIVE currency or as an exclusive means of exchange. As such they are a
wrongful and dangerous concept and practice. J.Z., 28.8.05.)
FOR THE ESTABLISHMENT AND
PRESERVATION OF CHEAP INTEREST RATES IN GERMANY, THE RULE OF LAW AND CAPITAL
FORMATION ARE THE MOST IMPORTANT PRECONDITIONS and the INDEPENDENCE OF THE
CURRENCY and of its ADMINISTRATION from POLITICAL decisions must be assured.
In all these respects I agree with
Dr. Luther, with all the less reservation as I have held the same principles
for many years. MUCH HARM WOULD HAVE BEEN PREVENTED IF DR. LUTHER WOULD HAVE
TAKEN HIS PRESENT STAND ALREADY 10 YEARS EARLIER. It is also unfortunate that
the policy of the emergency decrees of the government has been so little
influenced by DR. LUTHER'S present insights. DR. LUTHER is furthermore right
when stating in Frankfurt/M that in times of severe economic crises thousands
of currency plans are developed which disappear again with the end of the
crisis because they ignored the principles of a sound currency system. Alas,
DR. LUTHER did not admit that it was the Reichsbank itself which has ENDANGERED
THE CURRENCY by severely offending against the rules on note cover, discount
rate and the discounting of financial bills - as I have shown in my essay
"Diskontsenkung und Währung"
(Discount Rate Reduction and Currency), in "Deutsches
Volksrecht" (German People's Rights), of
The Four Law Drafts submitted by Prof.
Dr. Rittershausen fulfill all requirements of an honest currency.
The ABOLITION OF LEGAL TENDER
would make inflation impossible.
The abolition of CENTRALIZATION
would make deflation impossible.
The issue of REICH TREASURY NOTES
would relieve the Reichsbank from the burden of financing the treasury and
thereby, and through the CLEARING BANK, the turnover credit required by the
economy would be provided.
WITH THIS STATEMENT DR. BEST'S COMMENTS END.
THE REST OF THE FICHE IS FILLED WITH THE ORIGINAL GERMAN TEXTS - for the
benefit of those who take these proposals serious enough. John Zube, 8/2/1979.
If you would like to discuss these proposals write to me: 35 Oxley St. or P.O.Box 52, Berrima, NSW 2577, email@example.com.
Entwurf eines Gesetzes über wertbeständige
Rechnung und Entlastung der Reichsbank.
Entwurf eines Gesetzes über
Entwurf eines Gesetzes über Erleichterung
der Steuerzahlung durch Schuldbuchforderungen.
Entwurf eines Gesetzes über Verrechnungsbanken
See Vier Gesetzentwuerfe