• Choose a category
• All
• Classic-Fiction

By Root 1315 0

so must be accompanied by a fall in the objective exchange value of money. The course taken by the depreciation that is a consequence of the issue of fiduciary media by the banks may diverge in some degree from that which it takes in the case of an increase of the stock of money in the narrower sense, or from that which it takes when the fiduciary media are issued otherwise than by banks; but the essence of the process remains the same. For it is a matter of indifference whether the diminution in the objective exchange value of money begins with the mine owners, with the government which issues fiat money credit money, or token coins, or with the undertakings that have the newly issued fiduciary media placed at their disposal by way of loans.

Painful consideration of the question whether fiduciary media really could be indefinitely augmented without awakening the mistrust of the public would be not only supererogatory, but otiose. For the problems of theory that we are dealing with, it is a question that has scarcely any significance. We are not conducting our investigation in order to show that the objective exchange value of money and the rate of interest on loans could be reduced almost to zero; but in order to disclose the consequences that arise from the divergence (which we have shown to be possible) between the money rate and the natural rate of interest. For this reason, it is also a matter of indifference to us, as we have just shown, that under a system of commodity money the fiduciary media cannot continue to be augmented after the objective exchange value of the money is reduced to the level determined by the industrial employment of the metal.

If it is possible for the credit-issuing banks to reduce the rate of interest on loans below the rate determined at the time by the whole economic situation (Wicksell's natürliche Kapitalzins or natural rate of interest), then the question arises of the particular consequences of a situation of this kind. Does the matter rest there, or is some force automatically set in motion which eliminates this divergence between the two rates of interest? It is a striking thing that this problem, which even at a first glance cannot fail to appear extremely interesting, and which moreover under more detailed examination proves to be one of the greatest importance for comprehension of many of the processes of modern economic life, has until now hardly been dealt with seriously at all.

We shall not say anything further here of the effects of an increased issue of fiduciary media on the determination of the objective exchange value of money; they have already been dealt with exhaustively. Our task now is merely to discover the general economic consequences of any conceivable divergence between the natural and money rates of interest, given uniform procedure on the part of the credit-issuing banks. We obviously need only consider the case in which the banks reduce the rate of interest below the natural rate. The opposite case, in which the rate of interest charged by the banks is raised above the natural rate, need not be considered; if the banks acted in this way, they would simply withdraw from the competition of the loan market, without occasioning any other noteworthy consequences.

The level of the natural rate of interest is limited by the productivity of that lengthening of the period of production which is just justifiable economically and of that additional lengthening of the period of production which is just not justifiable; for the interest on the unit of capital upon whose aid the lengthening depends must always amount to less than the marginal return of the justifiable lengthening and to more than the marginal return of the unjustifiable lengthening. The period of production which is thus defined must be of such a length that exactly the whole available subsistence fund is necessary on the one hand and sufficient on the other for paying the wages of the laborers throughout the duration of the productive process. For if it were shorter, all the workers could no longer be