UNEMPLOYMENT AS A PROBLEM OF TURNOVER CREDITS
AND
THE SUPPLY OF MEANS OF PAYMENT
The Gradual Destruction Of The Classical System, From 1909 To 1932, As Cause Of The Difficulties Encountered In Re-Integrating The Unemployed
3. The Centralisation Of The System Of Note Issue As An Indication For The Transition From Banknotes To Paper Money
THIS MONOPOLISTIC SYSTEM which in such purity exists in no other sphere, could never have maintained itself if it had not offered - not to the State as a community of people - but, instead, to the STATE AS THE EXCHEQUER, IMMENSE ADVANTAGES.
The legal tender money represented by such "banknotes" with forced currency, obeys quite different laws than the genuine turnover bank money of the private payment community, which has been described by us. In particular, IT CAN BE MULTIPLIED WITHOUT LIMITS AND IT CAN BE FORCED UPON PEOPLE AND IT IS THUS EXTREMELY DANGEROUS WITH REGARD TO INFLATION.
6. The Identity Of The Rule Of Legal Tender, The Central Banking Concept And Inflationism
This dangerous and economically condemnable regime of legal tender (11) would never have been resolved upon if it had not, apart from its advantages for the Exchequer, one characteristic which defeated all objective considerations:
According to the dominant view the FINANCING OF WAR was impossible without a "strong bank of issue". Accordingly, in Germany in the year 1909, following the precedent set by other countries (12), as a preparatory measure for the possible war, the REICHSBANK NOTES WERE DECLARED LEGAL TENDER. Again and again and in all countries, during discussions of the central bank problem, it was stressed how important a strong central bank of issue would be in case of war. With this argument the purely economic arguments, which mostly favoured decentralisation, were silenced, in all countries.
BEHIND THE DRIVE TOWARDS A "STRONG CENTRAL BANK" THE INTENTION WAS HIDDEN TO PRODUCE AN INFLATION, SOMETIME, and this is only conceivable when the redemption obligation is repealed and LEGAL TENDER IS INTRODUCED. THE IDEA OF CENTRAL BANKING AND INFLATIONISM ARE IDEOLOGICALLY AND HISTORICALLY INSEPARABLE.
7. After The Fall Of The Banks Followed The Destruction Of The German Monetary System - By The Changeover From Money Based On Commercial Bills To Money Based On Financial Bills
Dr. Hjalmar Schacht commented upon this important clause in his Commentary, on p. 142, as follows:
"With regard to the purpose of the banks of issue, the previously applied principle that the bills discounted by the bank must exclusively be good commercial bills has been expressly laid down in the new Bank Act. Thereby the Bank is PROHIBITED from discounting any other bills, e.g., the so-called FINANCE OR CREDIT BILLS or of bills which are drawn for speculative purposes."
9. The Fateful Compensation Of An Inflation Of Financial Bill Money By A Deflation Of Commercial Bill Money
If one had issued as much financial bill money in normal times, then an inflation would have resulted. That, at that time, no inflation followed, is explained by the fact that a corresponding amount of sound commercial bill money was displaced.
Thus, by 1932, WE WERE CONFRONTED WITH THE ALTERNATIVE OF EITHER A PRIMITIVE BARTER EXCHANGE OF GOODS or a radical break with the present system, combined with a return to proven credit principles.
10. The False Support Of The Banks Increases Unemployment
The German Bank Act, based on the experiences gathered in crises during more than 150 years, had obliged the Reichsbank, by its provisions and penal clauses, to grant credit only to sound banks and this only for the turnover of goods and the provision of employment through the exchange of goods and services - and to leave the unsound banks to their fate. However, Reichsbank and the Reich Government decided upon the reverse: They broke the Bank Act, a protective law of the first order against such abuses. They supported the unsound banks with almost 2,000 million Reichsmark in subsidies, out of tax funds. They thereby offered a camouflaged government guaranty to unsound banks and thus deprived the sound banks of their customers.
12. Where Does The Inflation Danger Lie Today?
Against the inflation argument, which is constantly used to fight the natural provision of employment by turnover credit, one can simply say that the cart is put before the horse when the private financing of new and additional turnovers is stigmatised as dangerous while, at the same time, the OLD credit grant system by means of the creation of prohibited financial bill money, through prolongations, is uncritically passed over. In this situation the only right thing to do can only be to promote the payment transactions concerned with turnover and to proceed against the old, frozen and inflationary mass of means of payment, which is hoarded to a threatening degree, by abolishing their compulsory market rate (legal tender) and by withdrawing them.
14. Is The Central Bank System Or Free Banking More Suitable To Provide Employment And End The Crisis?
Already Hock uttered prophetic words on this subject, sounding like a judgement on today's banking and currency crises in all countries. (Quoted here from Leopold Lasker's "Bankfreiheit" (Free Banking ), 1871, page 66.):
"For a monopoly bank the State must step in, in times of a crisis, granting advances, standing guarantor for it, infringing the law in its favour, permitting a moratorium, authorising its notes to circulate further, although it can no longer redeem them, perhaps conferring a forced rate (legal tender) on them, all this because, otherwise, the whole trade of the country, which is dependent on this bank, would be, forcefully, brought to a standstill.
Under a system of free banks the failure of a bank passes as unnoticed and is so completely dealt with by the law as the insolvency of any other business.
Many banks of North America have often and repeatedly suspended payment during the great trade crises of 1837 and 1857, but the effects of these events barely lasted a year. New banks were established or the old ones rehabilitated themselves and trade became brisk again.
In Austria, on the other hand, the cessation of redemption led to most deplorable interferences by the State with private rights and caused a paralysing fluctuation of the currencies and the rate of foreign exchange" (foreign exchange shortage! - the author.) "lasting until today."
15. Decline Of The Credit System And Aggravation Of The Unemployment Problem -
As The Outcome Of An Unhealthy Development Over Several Decades
Thus is was not transitory errors of economic policy or faults in the organisation of the world economy that have caused the long-continued worsening of the crisis - but they were basic misconceptions which had been growing over decades and were, by custom, almost legalized:
a) THE SEPARATION OF NOTE ISSUES FROM THE GOODS TURNOVER THROUGH THE SEPARATION
OF FUNCTIONS between banks of issue and deposit banks,
b) the MONOPOLISATION of the note issue by a central bank, which is always restrictive and deflationary,
c) the transition from the BANKNOTE which is serving turnovers and which remains, with its free market rate, under the control of the market, to an irredeemable PAPER MONEY WITH COMPULSORY ACCEPTANCE (legal tender),
d) the inflation and devaluation tendencies which are inherent in the SEMI-OFFICIAL CENTRAL BANK and in the rule of COMPULSORY ACCEPTANCE (legal tender) for notes, (and COMPULSORY VALUE! - J.Z.)
e) the NEGLECT OF THE TURNOVER AND EXCHANGE PRINCIPLE in favour of the lombard- and mortgage-type security principle in granting credits -
These are the developments which have turned our banks to a large extent away from their original purpose - to promote the wealth of the community and to provide employment. They have, temporarily, left our country, as well as many other countries, in spite of its enormous national wealth, WITHOUT A PROPER ORGANIZATION FOR THE MUTUAL PROVISION OF EMPLOYMENT THROUGH CREDITS.
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