The Theory of Money and Credit - Ludwig von Mises [162]
[7] This example assumes the circumstances that existed before 1914.
[8] See pp. 263 ff. But the fact is often ignored that this "principle of the banking adequate cover" is valid not only for banks but similarly for all other undertakings. See, for example, Schulze-Gaevernitz, "Die deutsche Kreditbank," Grundriss der Sozialökonomik, Part V, section 2, pp. 240 ff.
[9] See Wagner, System der Zettelbankpolitik (Freiburg, 1873), pp. 240 ff.—The "golden rule" found its classical expression with regard to the business of credit banks in the famous "Note expédiée du Havre le 29 Mai 1810, à la Banque de France, par ordre de S. M. l'Empereur, et par l'entremise de M. le comte Mollien, ministre du Trésor" (I quote from the reprint in Wolowski, La Question des Banques [Paris, 1864], pp. 83-87): "Il faut qu'une banque se maintienne en état de se liquider à tout moment, d'abord, vis-à-vis des porteurs de ses billets, par la réalisation de son portefeuille, et, apres les porteurs de ses billets, viv-à-vis de ses actionnaires, par la distribution à faire entre eux de la portion du capital fourni par chacun d'eux. Pour ne jamais finir, une banque doit etre toujours prête à finir" (p. 87). All the same, Mollien had no doubt on the point that a bank that does not issue its notes otherwise "qu'en échange de bonnes et valable lettres de change, à deux et trois mois de terme au plus" can only call in its notes from circulation "dans un espace de trois mois" (ibid., p. 84).
[10] In the United States, before the reorganization of the banking system under the Federal Reserve Act, the lack of a central bank in times of crises was made up for y ad hoc organizations of the banks that were members of the clearinghouses.
[11] See above, pp. 313 f.
[12] See Nicholson, A Treatise on Money and Essays on Present Monetary Problems (Edinburgh, 1888), pp. 67 f.
[13] See Kalkmann, "Holland's Geldwesen im 29. Jahrhundert," in Schmoller's Jahrbuch, vol. 25, pp. 2249 ff.; Witten, "Die Devisenpolitik der Nationalbank von Belgien," in ibid., vol. 42, pp. 625 ff.
Chapter 19. Money, Credit, and Interest
1. On the Nature of the Problem. 2. Money and Interest. 3. Equilibrium Rate and Money Rate of Interest. 4. Interest Policy and Production. 5. Credit and Economic Crises.
1 On the Nature of the Problem
It is the object of this chapter to investigate the connection between the amount of money in circulation and the level of the rate of interest. It has already been shown that variations in the proportion between the quantity of money and the demand for money influence the level of the exchange ratio between money and other economic goods. It now remains for us to investigate whether the variations thus evoked in the prices of commodities affect goods of the first order and goods of higher orders to the same extent. Until now we have considered variations in the exchange ratio between money and consumption goods only and left out of account the exchange ratio between money and production goods. This procedure would seem to be justifiable, for the determination of the value of consumption goods is the primary process and that of the value of production goods is derived from it. Capital goods or production goods derive their value from the value of their prospective products; nevertheless, their value never reaches the full value of these prospective products, but as a rule remains somewhat below it. The margin by which the value of capital goods falls short of that of their expected products constitutes interest; its origin lies in the natural difference of value between present goods and future goods. [1] If price variations due to monetary determinants happened to affect production goods and consumption goods in different degrees—and the possibility cannot be dismissed offhand—then they would lead to a change in the rate of interest. The problem suggested by this is identical with a second, although they are usually dealt with separately: Can the rate of interest be affected by the credit policy of the banks that issue fiduciary media? Are banks able