Choice in Currency

Compiled and introduced by Sudha Shenoy
Lecturer in Economics, University of Newcastle, New South Wales, 1973–74
Lecturer in Economics, Cranfield School of Management, 1974

1. Theory

(i) Political Law or Commercial Acceptability?

Professor Ludwig von Mises made the essential point in this extract: a currency is used as a medium of exchange not because it is declared to be legal tender but because it is generally acceptable.

. . . The law may declare anything it likes to be a medium of payment, and this ruling will be binding on all courts and on all those who enforce the decisions of the courts. But bestowing the property of legal tender on a thing does not suffice to make it money in the economic sense. Goods can become common media of exchange only through the practice of those who take part in commercial transactions; and it is the valuations of these persons alone that determine the exchange-ratios of the market. Quite possibly, commerce may take into use those things to which the state has ascribed the power of payment; but it need not do so. It may, if it likes, reject them.

Three situations are possible when the state has declared an object to be a legal means of fulfilling an outstanding obligation. First, the legal means of payment may be identical with the medium of exchange that the contracting parties had in mind when entering into their agreement; or, if not identical, it may yet be of equal value with this medium at the time of payment. For example, the state may proclaim gold as a legal medium for settling obligations contracted in terms of gold, or, at a time when the relative values of gold and silver are as 1 to 15½, it may declare that liabilities in terms of gold may be settled by payment of 15½ times the quantity of silver. Such an arrangement is merely the legal formulation of the presumable intent of the agreement. It damages the interests of neither party. It is economically neutral. The case is otherwise when the state proclaims as medium of payment something that has a higher or lower value than the contractual medium. The first possibility may be disregarded; but the second, of which numerous historical examples could be cited, is important. From the legal point of view, in which the fundamental principle is the protection of vested rights, such a procedure on the part of the state can never be justified, although it might sometimes be vindicated on social or fiscal grounds. But it always means, not the fulfilment of obligations, but their complete or partial cancellation. When notes that are appraised commercially at only half their face-value are proclaimed legal tender, this amounts fundamentally to the same thing as granting debtors legal relief from half of their liabilities.

Depreciation and commercial prudence

State declarations of legal tender affect only those monetary obligations that have already been contracted. But commerce is free to choose between retaining its old medium of exchange or creating a new one for itself, and when it adopts a new medium, so far as the legal power of the contracting parties reaches, it will attempt to make it into a standard of deferred payments also, in order to deprive of its validity, at least for the future, the standard to which the state has ascribed complete powers of debt-settlement. When, during the last decade of the 19th century, the bi-metallist party in Germany gained so much power that the possibility of experiment with its inflationist proposals had to be reckoned with, gold clauses began to make their appearance in long-term contracts. The recent period of currency depreciation has had a similar effect. If the state does not wish to render all credit transactions impossible, it must recognise such devices as these and instruct the courts to acknowledge them. And, similarly, when the state itself enters into ordinary business dealings, when it buys or sells, guarantees loans or borrows, makes payments or receives them, it must recognise the common business medium of exchange as money. The legal standard, the particular group of things that are endued with the property of unlimited legal tender, is in fact valid only for the settlement of existing debts, unless business usage itself adopts it as a general medium of exchange.

(Ludwig von Mises, Theory of Money and Credit, Foundation for Economic Education, Irvington-on-Hudson, New York, 1971 reprint of 1953 edition, pp. 70–71.)

(ii) Bad Money Drives out Good—Gresham’s Law or Government Price-Fixing?

Gresham’s Law is usually formulated as bad money driving good out of circulation. But this phenomenon occurs only where the government fixes the exchange rate between the two currencies. As circumstances change, one currency or the other becomes over-valued or undervalued. The under-valued currency then disappears from circulation.

Mintage has long been a prerogative of the rulers of the country. However, this government activity had originally no objective other than the stamping and certifying of weights and measures. The authority’s stamp placed upon a piece of metal was supposed to certify its weight and fineness. When later princes resorted to substituting baser and cheaper metals for a part of the precious metals while retaining the customary face and name of the coins, they did it furtively and in full awareness of the fact that they were engaged in a fraudulent attempt to cheat the public. As soon as people found out these artifices, the debased coins were dealt with at a discount as against the old better ones. The governments reacted by resorting to compulsion and coercion. They made it illegal to discriminate in trade and in the settlement of deferred payments between ‘good’ money and ‘bad’ money and decreed maximum prices in terms of ‘bad’ money. However, the result obtained was not that which the governments aimed at. Their decrees failed to stop the process which adjusted commodity prices (in terms of the debased currency) to the actual state of the money relation. Moreover, the effects appeared which Gresham’s Law describes.

(Ludwig von Mises, Human Action, Regnery, Chicago, Third revised edition, 1966, pp. 780–781.)

Champions of the government’s coinage monopoly have claimed that money is different from all other commodities, because ‘Gresham’s Law’ proves that ‘bad money drives out good’ from circulation. Hence, the free market cannot be trusted to serve the public in supplying good money. But this formulation rests on a misinterpretation of Gresham’s famous law. The law really says that ‘money overvalued artificially by government will drive out of circulation artificially undervalued money’. Suppose, for example, there are 1ounce gold coins in circulation. After a few years of wear-and-tear, let us say that some coins weigh only 0.9 oz. Obviously, on the free market, the worn coins would circulate at only 90 per cent of the value of the full-bodied coins, and the nominal face-value of the former would have to be repudiated. If anything, it will be the ‘bad’ coins that will be driven from the market. But suppose the government decrees that everyone must treat the worn coins as equal to new, fresh coins, and must accept them equally in payment of debts. What has the government really done? It has imposed price control by coercion on the ‘exchange rate’ between the two types of coin. By insisting on a par-ratio when the worn coins should exchange at a 10 per cent discount, it artificially overvalues the worn coins and undervalues new coins. Consequently, everyone will circulate the worn coins, and hoard or export the new.

‘Bad money drives out good money’, then, not on the free market, but as the direct result of governmental intervention in the market.

Legal tender.

. . . How was the government able to enforce its price controls on monetary exchange rates? By a device known as legal tender laws. Money is used for payment of past debts, as well as for present ‘cash’ transactions. With the name of a country’s currency now prominent in accounting instead of its actual weight, contracts began to pledge payment in certain amounts of ‘money’. Legal tender laws dictated what that ‘money’ could be. When only the original gold or silver was designated ‘legal tender’, people considered it harmless, but they should have realised that a dangerous precedent had been set for government control of money. If the government sticks to the original money, its legal tender law is superfluous and unnecessary.15 On the other hand, the government may declare as legal tender a lower-quality currency side-by-side with the original. Thus, the government may decree worn coins as good as new ones in paying off debt, or silver and gold equivalent to each other in the fixed ratio. The legal tender laws then bring Gresham’s Law into being.

(Murray N. Rothbard, What Has Government Done to Our Money?, Rampart College, Santa Ana, California, 1974, pp. 9–10, 35.)

(iii) The Solution

Professor Hayek first advocated the use of alternative currencies in 1960.

Though I am convinced that modern credit banking as it has developed requires some public institutions such as the central banks, I am doubtful whether it is necessary or desirable that they (or the government) should have the monopoly of the issue of all kinds of money. The state has, of course, the right to protect the name of the unit of money which it (or anybody else) issues and, if it issues ‘dollars’, to prevent anybody else from issuing tokens with the same name. And as it is its function to enforce contracts, it must be able to determine what is ‘legal tender’ for the discharge of any obligation contracted. But there seems to be no reason whatever why the state should ever prohibit the use of other kinds of media of exchange, be it some commodity or money issued by another agency, domestic or foreign. One of the most effective measures for protecting the freedom of the individual might indeed be to have constitutions prohibiting all peacetime restrictions on transactions in any kind of money or the precious metals. (Editorial italics.)

(F. A. Hayek, The Constitution of Liberty, University of Chicago Press, Chicago, and Routledge & Kegan Paul, London, 1960, pp.520–521.)

2. History

(i) France, 1789 . . . Assignats and Legal Tender by Penalty of Death

This extract is taken from an account of the French experience with the assignats issued after the French Revolution. As larger and larger quantities were issued, their value declined progressively — i.e. prices rose. Attempts at price control failed despite the severest penalties. Since gold and silver coins were also in circulation, the French began to reject assignats in their favour because they retained their value. Professor Andrew Dickson White here chronicles the failure of the French government to force the French to accept assignats at the same value as the metallic currencies.

. . . As far back as November 1792, the Terrorist associate of Robespierre, St Just, in view of the steady rise in prices of the necessaries of life, had proposed a scheme by which these prices should be established by law, at a rate proportionate to the wages of the working classes. This plan lingered in men’s minds, taking shape in various resolutions and decrees until the whole culminated on 29 September, 1793, in the Law of the Maximum.

. . . Committees of experts were appointed to study the whole subject of prices, and at last there were adopted the great ‘four rules’ which seemed to statesmen of that time a masterly solution of the whole difficulty.

The Law of the Maximum

First, the price of each article of necessity was to be fixed at one and one-third its price in 1790. Secondly, all transportation was to be added at a fixed rate per league. Thirdly, 5 per cent was to be added for the profit of the wholesaler. Fourthly, 10 per cent was to be added for the profit of the retailer. Nothing could look more reasonable. Great was the jubilation. The report was presented and supported by Barrere — ‘the tiger monkey’ — then in all the glory of his great orations: now best known from his portrait by Macaulay. Nothing could withstand Barrere’s eloquence. He insisted that France had been suffering from a ‘Monarchical commerce which only sought wealth’, while what she needed and what she was now to receive was a ‘Republican commerce — a commerce of moderate profits and virtuous’. He exulted in the fact that ‘France alone enjoys such a commerce — that it exists in no other nation’. He poured contempt over political economy as ‘that science which quacks have corrupted, which pedants have obscured, and which academicians have depreciated’. France, he said, has something better, and he declared in conclusion, ‘The needs of the people will no longer be spied upon in order that the co mmercial classes may arbitrarily take advantage’.

The first result of the Maximum was that every means was taken to evade the fixed price imposed, and the farmers brought in as little produce as they possibly could. This increased the scarcity, and the people of the large cities were put on an allowance. Tickets were issued authorising the bearer to obtain at the official prices a certain amount of bread or sugar or soap or wood or coal to cover immediate necessities.

Price-fixing a failure

But it was found that the Maximum, with its divinely revealed four rules, could not be made to work well — even by the shrewdest devices. In the greater part of France it could not be enforced. As to merchandise of foreign origin or merchandise into which any foreign product entered, the war had raised it far above the price allowed under the first ru1e, namely, the price of 1790 with an addition of one-third. Shopkeepers therefore could not sell such goods without ruin. The result was that very many went out of business, and the remainder forced buyers to pay enormous charges under the very natural excuse that the seller risked his life in trading at all. That this excuse was valid is easily seen by the daily lists of those condemned to the guillotine, in which not infrequently figure the names of men charged with violating the Maximum laws. Manufactures were very generally crippled and frequently destroyed, and agriculture was fearfully depressed. To detect goods concealed by farmers and shopkeepers, a spy system was established with a reward to the informer of one-third of the value of the goods discovered. To spread terror, the Criminal Tribunal at Strassburg was ordered to destroy the dwelling of anyone found guilty of selling goods above the price set by law. The farmer often found that he could not raise his products at anything like the price required by the new law; and when he tried to hold back his crops or cattle, alleging that he could not afford to sell them at the prices fixed by law, they were frequently take n from him by force and he was fortunate if paid even in the depreciated fiat money fortunate, indeed, if he finally escaped with his life.

Death for refusal of legal tender

Involved in all these perplexities, the Convention tried to cut the Gordian knot. It decreed that any person selling gold or silver coin, or making any difference in any transaction between paper and specie, should be imprisoned in irons for six years; that anyone who refused to accept a payment in assignats, or accepted assignats at a discount, should pay a fine of 3,000 francs; and that anyone committing this crime a second time shou1d pay a fine of 6,000 francs and suffer imprisonment 20 years in irons. Later, on 8 September, 1793, the penalty for such offences was made death, with confiscation of the criminal’s property, and a reward was offered to any person informing the authorities regarding any such criminal transaction. To reach the climax of ferocity, the Convention decreed, in May 1794, that the death penalty should be inflicted on any person convicted of ‘having asked, before a bargain was concluded, in what money payment was to be made’. Nor was this all. The great finance minister, Cambon, soon saw that the worst enemies of his policy were gold and silver. Therefore it was that, under his lead, the Convention closed the Exchange and finally, on 13 November, 1793, under terrifying penalties, suppressed all commerce in the precious metals.

. . . All this vast chapter in financial folly is some times referred to as if it resulted from the direct action of men utterly unskilled in finance. This is a grave error. That wild schemers and dreamers took a leading part in setting the fiat money system going is true; that specu1ation and interested financiers made it worse is also true; but the men who had charge of French finance during the Reign of Terror and who made these experiments, which seem to us so monstrous, in order to rescue themselves and their country from the flood which was sweeping everything to financial ruin were universally recognised as among the most skilful and honest financiers in Europe. Cambon, especially, ranked then and ranks now as among the most expert in any period. The disastrous results of all his courage and ability in the attempt to stand against the deluge of paper money show how powerless are the mo st skilfu1 masters of finance to stem the tide of fiat money calamity when once it is fairly under headway; and how useless are all enactments which they can devise against the underlying laws of nature.

Month after month, year after year, new issues went on. Meanwhile, everything possible was done to keep up the value of paper. The city authorities of Metz took a solemn oath that the assignats should bear the same price whether in paper or specie, and whether in buying or selling, and various other official bodies throughout the nation followed this example. In obedience to those who believed with the market women of Paris, as stated in their famous petition, that ‘laws should be passed making paper money as good as gold’, Couthon, in August 1793, had proposed and carried a law punishing any person who should sell assignats at less than their nominal value with imprisonment for 20 years in chains, and later carried a law making investments in foreign countries by Frenchmen punishable with death.

‘Fiat’ money obeyed natural laws of finance

But to the surprise of the great majority of the French people, the value of the assignats was found, after the momentary spasm of fear had passed, not to have been permanently increased by these measures. On the contrary, this ‘fiat’ paper persisted in obeying the natural laws of finance and, as new issues increased, their value decreased.

. . . The issues of paper money continued. Toward the end of 1794 seven thousand millions in assignats were in circulation. By the end of May 1795, the circulation was increased to ten thousand millions; at the end of July, to fourteen thousand millions; and the value of one hundred francs in paper fell steadily, first to four francs in gold, then to three, then to two and one-half.

The powerless guillotine and the power of gold

. . . Interesting is it to note in the midst of all this the steady action of another simple law in finance. Prisons, guillotines, enactments inflicting 20 years’ imprisonment in chains upon persons twice convicted of buying or selling paper money at less than its nominal value, and death upon investors in foreign securities, were powerless. The National Convention, fighting a world in arms and with an armed revolt on its own soil, showed titanic power, but in its struggle to circumvent one simple law of nature its weakness was pitiable. The louis d’or stood in the market as a monitor, noting each day, with unerring fidelity, the decline in value of the assignat; a monitor not to be bribed, not to be scared. As well might the National Convention try to bribe or scare away the polarity of the mariner’s compass. On 1 August, 1795, this gold louis of 25 francs was worth in paper, 920 francs; on 1 September, 1,200 francs; on 1 November, 2,600 francs; on 1 December, 3,050 francs. In February 1796, it was worth 7,200 francs or one franc in gold was worth 288 francs in paper. Prices of all commodities went up nearly in proportion.

(Andrew Dickson White, Fiat Money: Inflation in France, Foundation for Economic Education, Irvington-on-Hudson, New York, 1959, pp. 75–89; first published in 1912 as revised version of 1876 lecture.)

(ii) USA, before 1857 (five foreign currencies legal tender) and after (only the dollar)

The United States up to the 1850s offers an important historical instance of the use of a wide variety of currencies. Dutch, English, French, Portuguese, and Spanish coins circulated freely as legal tender. Prices were quoted in Spanish dollars. After 1834 increasing quantities of American coins were minted, and in 1857 foreign coins were declared to be legal tender no longer.

(Based on Ernest L. Bogart and Donald L. Kemmerer, An Economic History of the American People, Longmans Green and Co, New York, 1942, pp. 360–361; and Hermann E. Knooss, American Economic Development, Prentice Hall, Englewood Cliffs, N.]., 1974, pp. 271–272.)

(iii) Germany, 1920–23

We now take two extracts from Professor Constantino Bresciani-Turroni’s book, The Economics of Inflation, on the great German inflation of 1920–23. Together, they illustrate how foreign currencies, and a host of illegal monies, replaced the hyper-inflated paper mark, in the last stages of the inflation. These alternative currencies were replaced, in turn, by the stabilised rentenmark. Although the hyper-inflated mark was legal tender, it was eventually rejected by the Germans. Its rejection forced the government to stabilise the currency.

Professor Bresciani-Turroni here describes how substantial quantities of foreign exchange and various illegal paper currencies began to circulate in Germany towards the end of the inflation. As there were no quantitative restraints on these illegal monies, they too depreciated in value. But they continued to be accepted in preference to the mark, which was depreciating even faster. Before the issue of the stabilised rentenmark (in November 1923), emergency notes were introduced, printed with the words ‘stable value’. The phrase was fictitious, but by now the Germans were ready to accept any currency other than the hyper-inflated mark.

In this last phase the legal paper money was replaced by other monies (which had no legal recognition), not only as ‘a store of value’ and as ‘a standard of value’, but also as a means of payment. Little by little foreign money, or the old national metallic money (which had been hoarded), or new money created by private firms, entered the circulation. The legal money was rejected by the public. . . .

The replacements of the legal money by other monies in Germany developed in an interesting way. In the summer of 1922, at a time when the external value of the mark was falling rapidly, causing a revolution of internal prices, the most important industries, one after another, adopted the practice of expressing prices in a foreign ‘appreciated’ money (dollars, Swiss francs, Dutch florins, etc.) or in gold marks. . . . Later the paper mark continually lost importance as a means of payment also. Wholesale trade, which badly needed a means of payment, resorted to foreign exchange.

In the summer of 1923, the need for a circulating medium being at times very acute, because of the rapid fall in the total real value of paper marks, the ‘emergency monies’ (which had from time to time appeared in the circulation... regulated by the law of 17 July, 1922) were multiplied. State and local governments, industrial associations, chambers of commerce, and private traders issued great quantities of paper ‘money’. Sometimes the issues were authorised and came under certain guarantees (see the decree of 26 October, 1923), but most were illegal issues, which, thanks to the rapid depreciation of notes, yielded considerable profits to the issuers. Illegal issues were especially frequent in the occupied territories. It is said that in the autumn of 1923 there were two thousand different kinds of emergency money in circulation! The abuses which arose from these issues constitute one of the most unhappy chapters in the history of the mark.

From the mark to the rentenmark

Towards mid-October 1923 it was obvious that the monetary chaos could not go on any longer without involving the entire economic system in complete catastrophe. On 13 October the law granting full powers was passed, and on 15 October the decree which instituted the ‘Rentenbank’ provided for the issue of a new money, the rentenmark, beginning from 15 November, 1923.

But, in the meantime, among the German population the need for a stable-value currency had become greater than ever. The working classes especially declared further delays to be intolerable and imperiously demanded a means of payment with a stable value. It being impossible, for technical reasons, to anticipate the date of the issue of the rentenmark, it was necessary to look elsewhere for an immediate solution of the urgent monetary problem, in order to avoid the dangers arising from the threatening attitude of the working classes. The Government put into circulation some small denominations (up to a tenth of a dollar) of ‘Gold Loan’ and some ‘Dollar Treasury Bonds’. However, as the notes immediately available were very limited, the Government authorised and even encouraged the issue of ‘emergency monies with a constant value’ (wertbeständiges Notgeld).

The issuers — who were principally the provinces, towns, and chambers of commerce — had to cover completely the paper money issued by depositing an equivalent sum in Gold Loan securities or by a special type of Gold Treasury Bond, which was created for the purpose (see decree of 26 October, 1923, and successive modifications, published by the Press on 4 November).

The railway administration was authorised to issue ‘emergency monies with a constant value’, up to the amount of 200 million gold marks, which were ‘guaranteed’ by a deposit of Gold Loan and of Gold Treasury Bonds of equivalent value.

It is unnecessary to state that the guarantee of the so-called ‘money with a stable value’ was purely fictitious. Actually the Gold Loan and the Gold Treasury Bonds were mere paper without any cover. (Editorial italics.)

Indeed, the law of 14 August, 1923, on the Gold Loan of 500 million gold marks, contained only this limited promise:

In order to guarantee the payment of interest and the redemption of the loan of 500 million gold marks, the Government of the Reich is authorised, if the ordinary receipts do not provide sufficient cover, to raise supplements to the tax on capital, in accordance with detailed regulations to be determined later.

These vague words constituted the entire guarantee behind the Gold Loan! Nevertheless, the Gold Loan Bonds and the notes issued against the Gold Loan deposits did not depreciate in value. The public allowed itself to be hypnotised by the word ‘wertbeständig; (stable-value) written on the new paper money. And the public accordingly accepted and hoarded these notes (the Gold Loan Bonds almost disappeared from circulation) even whilst it rejected the old paper mark — preferring not to trade rather than receive a currency in which it had lost all faith.16

Rejection of legal tender

Together with the introduction of foreign currencies and exchange, the creation of the ‘emergency money’ (which became important in the German circulation in the autumn of 1923 — indeed, the total value of the emergency money became considerably higher than the total value of the legal tender money) was evidence of the spontaneous reaction of the economic organism against the depreciation of the legal currency.17 (Editorial italics.)

It is impossible to show in any precise fashion the amount of foreign exchange circulating in Germany before the introduction of the rentenmark. Estimates vary very much. According to an estimate of the Cuno Government the foreign exchange and currencies in Germany in December 1922 amounted to 3 milliard gold marks. But the amount effectively circulating is not known. Accepting the opinion of some business men, Schacht estimated in October 1923 at 1.5 to 2 milliards the amount of foreign exchange and currencies circulating in Germany. According to Professor Hirsch, in the in flation years much foreign money entered Germany, part being hoarded and part being used as a means of payment. He maintains that this reserve of exchange in the autumn of 1923 was worth between three and four milliard gold marks. However, all these estimates are unreliable.

(C. Bresciani-Turroni, The Economics of Inflation, Augustus M. Kelley, New York, 1968 reprint of 1937 edition, pp. 341–345.)

The rentenmark was accepted only because its issue was strictly limited. It replaced not the old hyper-inflated mark but all the ‘emergency monies’ issued in the last stages of the hyper-inflation as well as the foreign exchange also circulating illegally.

. . . In October and in the first half of November [1923] lack of confidence in the German legal currency was such that, as Luther wrote, ‘any piece of paper, however problematical its guarantee, on which was written “constant value” was accepted more willingly than the paper mark’.

. . . But on the basis of the simple fact that the new paper money [the rentenmark] had a different name from the old, the public thought it was something different from the paper mark, believed in the efficacy of the mortgage guarantee and had confidence. The new money was accepted, despite the fact it was an inconvertible paper curre ncy. It was held and not spent rapidly, as had happened in the last months with the paper mark.

Confidence in rentenmark dependent on limited issue

Undoubtedly this confidence, thanks to which the rentenmark could enter the channels of circulation immediately, would have been quickly dissipated if the public had been led to expect that, despite the obligation imposed on the Rentenbank by decree, the Government would exceed the pre-arranged limit to issues.18 An attempt to violate these obligations was made by the Government in December 1923, but it was confronted by a determined refusal by the management of the Rentenbank. The incident helped to strengthen confidence in the new money. The limitation of the quantity was then of primary and fundamental importance.

. . . the rentenmark and the new paper marks took the place of the various auxiliary monies, legal and illegal, which had been issued in the autumn of 1923, and of foreign exchange.

In fact, from German monetary statistics it appears that the circulation of the ‘Notgeld’ and of the ‘Goldanleihe’ notes fell continually after the introduction of the rentenmark. The amount of authorised emergency money, of railway emergency money and of Gold Loan notes in circulation, which was 728 million gold marks on 31 December, 1923, was reduced to 348 millions on 31 March, 1924, and to 38 millions on 31 July following.

At the same time the Reichsbank energetically set about eliminating illegal emergency monies from circulation. According to an inquiry made by the Central Statistical Bureau, at the end of January 1924, the circulation of unauthorised money was reduced to about 160 trillions (132 of which were in occupied territory) and to 105.6 trillions at the end of February of the same year.

. . . The increase in the circulation of legal money which occurred after the introduction of the rentenmark can be explained, up to the amount of 1,100–1,200 million marks, by the substitution of rentenmarks and paper marks for the various kinds of auxiliary monies.19

The phenomenon of the replacement of foreign exchange by German money showed itself in the balance sheets of the Reichsbank, which showed a continuous and noticeable rise in the item ‘other assets’, in which, as experts know, was included precisely that foreign exchange. It shows that the public sold foreign exchange to the Reichsbank for German money.

(C. Bresciani-Turroni, ibid., pp. 347–349.)

• 15‘The ordinary law of contract does all that is necessary without any law giving special functions to particular forms of currency. We have adopted a gold sovereign as our unit…If I promise to pay 100 sovereigns, it needs no special currency law of legal tender to say that I am bound to pay 100 sovereigns, and that, if required to pay 100 sovereigns, I cannot discharge my obligation by paying anything else.’ (Lord Farrer, Studies in Currency 1898, MacMillan and Co. London, 1898, p. 43. On the legal tender laws, see also Mises, Human Action, Yale University Press, New Haven, 1949, pp. 432n, 444.)
• 16It is not possible to estimate the value of the ‘emergency money’ which circulated in Germany just before the introduction of the rentenmark, because the illegal issues cannot be estimated. According to official estimates, the authorised ‘Notgeld’ and ‘Goldanleihe’ amounted to 728 million gold marks on 31 December, 1923. According to an estimate of the Statistical Bureau of the Reich (see Wirtschaft und Statistik, 1924, p.121) the issue of unauthorised subsidiary money amounted, at its maximum, to 332 trillion paper marks. In its Report for 1923 the Reichsbank gave a considerably higher figure: 400–500 trillion paper marks.
• 17According to Professor Hirsch the phenomenon of the ‘repudiation’ of the paper mark was clearly apparent towards the end of June 1923, at first in the occupied territory and later in other parts of Germany. Instead the ‘Goldanleihe’ was accepted by the country people. A considerable part of the harvest of 1923 was bought by consumers with Gold Loan securities (Die deutsche Währungsfrage, Berlin, 1924, pp. 121, 129). But in the cities, as the present author discovered personally, the paper mark was not rejected, although the ‘appreciated’ foreign currencies were more willingly accepted.
• 18According to the Decree of 15 October, 1923, the maximum issue of rentenmarks was fixed at 2,400 million, including 1,200 million to be put at the disposal of the Government.
• 19According to the statements made by the President of the Reichsbank on 26 May, 1924, at Hamburg, on 1 January, 1924, there were still 1,157 million gold marks of auxiliary money circulating in Germany; at the end of May of the same year it was reduced to 152 million.