The Theory of Money and Credit

A return to the actual use of gold would be certain to have effects that would scarcely be welcomed. It would lead to a rise in the price of gold, or, what is the same thing, to a fall in the prices of commodities. The fact that this is not generally desired, and the reason why it is not, have already been dealt with. We may confidently suppose that such a fall in prices would cause just as much dissatisfaction as was caused by the process of expelling gold from circulation. And it hardly demands an excessive amount of insight to be able to predict that in such circumstances it would not be long before the gold standard was again accused of responsibility for the bad state of business. Once again the gold standard would be reproached with depressing prices and forcing up the rate of interest. And once again proposals would be made for some sort of “modification” of the gold standard. In spite of all these objections, the question of the advisability of a return to an actual gold standard demands serious consideration.

One thing alone would recommend the abandonment of the gold-exchange standard and the reintroduction of the actual use of gold; this is the necessity for making a recurrence of inflationary policies if not impossible at least substantially more difficult. From the end of the last century onward it was the aim of etatism in monetary policy to restrict the actual circulation of gold for three reasons: first, because it wished to inflate, without repealing the existing banking laws, by concentrating gold reserves in the central bank-of-issue; second, because it wished to accumulate a war chest; and third, because it wished to wean the people from the use of gold coins so as to pave the way for the inflationary policy of the coming Great War.

Admittedly it will not be possible to prevent either war or inflation by opposing such endeavors as these. Kant’s proposal to prohibit the raising of loans for war purposes is extremely naive;31  and it would be still more naive to bring within the scope of such a prohibition the issue of fiduciary media too. Only one thing can conquer war—that liberal attitude of mind which can see nothing in war but destruction and annihilation, and which can never wish to bring about a war, because it regards war as injurious even to the victors. Where liberalism prevails, there will never be war. But where there are other opinions concerning the profitability and injuriousness of war, no rules and regulations, however cunningly devised, can make war impossible. If war is regarded as advantageous, then laws regulating the monetary systems will not be allowed to stand in the way of going to war. On the first day of any war, all the laws opposing obstacles to it will be swept aside, just as in 1914 the monetary legislation of all the belligerent states was turned upside down without one word of protest being ventured. To try to oppose future war policies through currency legislation would be foolish. But it may nevertheless be conceded that the argument in favor of making war more difficult cannot be neglected when the question is being debated whether the actual domestic circulation of gold should be done away with in the future or not. If the people are accustomed to the actual use of gold in their daily affairs they will resist an inflationary policy more strongly than did the peoples of Europe in 1914. It will not be so easy for governments to disavow the reactions of war on the monetary system; they will be obliged to justify their policy. The maintenance of an actual gold currency would impose considerable costs on individual nations and would at first lead to a general fall of prices; there can hardly be any doubt about that. But all its disadvantages must be accepted as part of the bargain if other services are demanded of the monetary system than that of preparing for war, revolution, and destruction.

It is from this point of view that we should approach the question of the denominations of notes. If the issue of notes which do not make up a multiple of at least the smallest gold coins is prohibited, then in the business of everyday life gold coins will have to be used. This could best be brought about by an international currency agreement. It would be easy to force countries into such an agreement by means of penal customs duties.

• 31See Kant, Werke, vol. 5, Zum ewigen Frieden (Insel-Ausgabe), pp. 661 f.