A Critique of Interventionism
3. The Danger of Overexpansion and Immobilization
What has been said here applies to every attempt at transferring private enterprises, especially the banking system, into the hands of the state, which in its effects would amount to all-round nationalization. But in addition, it would create credit problems that must not be overlooked.
Deumer seeks to show that the credit monopoly could not be abused for fiscal reasons. But the dangers of credit nationalization do not lie here; they lie with the purchasing power of money.
As is well known, demand deposits subject to checks have the same effect on the purchasing power of a monetary unit as bank notes. Deumer even proposes an issue of “guaranteed certificates” or “clearing house certificates” that are never to be redeemed.6 In short, the national bank will be in the position to inflate.
Public opinion always wants “easy money,” that is, low interest rates. But it is the very function of the note-issuing bank to resist such demands, protecting its own solvency and maintaining the parity of its notes toward foreign notes and gold. If the bank should be excused from the redemption of its certificates it would be free to expand its credits in accordance with the politicians’ wishes. It would be too weak to resist the clamor of credit applicants. But the banking system is to be nationalized, in Deumer’s words, “to pay heed to the complaints of small industrial enterprises and many commercial firms that they are able to secure the necessary credits only with great difficulties and much sacrifice.”7
A few years ago it would have been necessary to elaborate the consequences of credit expansion. There is no need for such an effort today. The relationship between credit expansion and rising goods prices and foreign exchange rates is well known today. This has been brought out not only by the research of some economists, but also by the American and British experiences and theories with which Germans have become familiar. It would be superfluous to elaborate further on this.
